posam
As filed with the Securities
and Exchange Commission on December 10, 2007
Registration No. 333-145929
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Post-Effective Amendment
No. 1
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
CARDTRONICS, INC.
(exact name of registrant as
specified in its charter)
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Delaware
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7389
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76-0681190
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(State or Other Jurisdiction
of
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(Primary Standard
Industrial
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(I.R.S. Employer
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Incorporation or
Organization)
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Classification Code
Number)
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Identification
No.)
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J. Chris Brewster
Chief Financial Officer
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3110 Hayes Road, Suite 300
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3110 Hayes Road, Suite 300
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Houston, Texas 77082
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Houston, Texas 77082
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(281) 596-9988
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(281) 596-9988
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(Address, Including Zip Code,
and Telephone Number,
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(Name, Address, Including Zip
Code, and Telephone Number,
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Including Area Code, of
Registrants Principal Executive Offices)
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Including Area Code, of Agent
for Service)
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Copies to:
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David P. Oelman, Esq.
Bruce C. Herzog, Esq.
Vinson & Elkins L.L.P.
2500 First City Tower
1001 Fannin Street
Houston, Texas
77002-6760
713-758-2222
713-615-5861
(fax)
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Robert Evans III, Esq.
Andrew R. Schleider, Esq.
Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022
212-848-4000
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities of an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this preliminary prospectus is not complete and
may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is declared effective. This preliminary prospectus is
not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
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Subject to Completion, Dated
December 10, 2007
PROSPECTUS
Cardtronics, Inc.
12,000,000 Shares
Common Stock
This is the initial public offering of Cardtronics, Inc. common
stock. We are offering 12,000,000 shares of our common
stock. No public market currently exists for our common stock.
Our common stock has been approved for listing on The Nasdaq
Global Market under the symbol CATM. We currently
estimate that the initial public offering price will be between
$10.00 and $11.00 per share.
Investing in our common stock involves risk. See
Risk Factors beginning on page 15.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds, before expenses, to the Company
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$
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$
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Certain stockholders have granted the underwriters a
30-day
option to purchase up to an aggregate of 1,800,000 additional
shares of our common stock to cover over-allotments.
The underwriters expect to deliver the shares on or
about ,
2007.
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Deutsche
Bank Securities |
William
Blair & Company |
Banc
of America Securities LLC |
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JPMorgan |
Piper
Jaffray |
RBC Capital
Markets |
The date of this prospectus
is ,
2007.
TABLE OF
CONTENTS
Dealer Prospectus
Delivery Obligation
Through and
including ,
2008 (25 days after the date of this prospectus), all
dealers that effect transactions in these securities, whether or
not participating in the offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as an underwriter and with
respect to unsold allotments or subscriptions.
About this
Prospectus
You should rely only on the information contained in this
prospectus or to which we have referred you, including any free
writing prospectus that we file with the SEC relating to this
offering. We have not authorized any other person to provide you
with different information. We are only offering to sell, and
only seeking offers to buy, the common stock in jurisdictions
where offers and sales are permitted.
The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common stock.
Our business, financial condition, results of operations and
prospects may have changed since that date.
This summary highlights information contained elsewhere in
this prospectus. This summary sets forth the material terms of
the offering, but does not contain all of the information that
you should consider before investing in our common stock. You
should read the entire prospectus carefully before making an
investment decision, especially the risks of investing
in our common stock discussed under Risk
Factors. The terms we, us,
our, the Company, and
Cardtronics refer to Cardtronics, Inc. and its
subsidiaries, unless the context otherwise requires. We refer to
automated teller machines as ATMs throughout this prospectus.
Pro forma financial and non-financial information contained in
this prospectus gives effect to our acquisition of the financial
services business of 7-Eleven, Inc. (7-Eleven),
which we refer to as the 7-Eleven ATM Transaction,
including the related financing transactions, as if they had
occurred prior to the period for which such information is
given. Such pro forma information is presented for illustrative
purposes only and is not necessarily indicative of what our
actual results would have been nor is it necessarily indicative
of what our results will be in future periods. All financial and
non-financial information presented for periods subsequent to
July 20, 2007, the effective date of the
7-Eleven ATM
Transaction, includes the effects of such acquisition and the
related financing transactions on an actual rather than a pro
forma basis.
Our
Business
Cardtronics, Inc. operates the worlds largest network of
ATMs. Our network currently includes over 31,500 ATMs,
principally in national and regional merchant locations
throughout the United States, the United Kingdom, and Mexico.
Approximately 19,600 of the ATMs we operate are
Company-owned and 11,900 are merchant-owned. Our
high-traffic retail locations and national footprint make us an
attractive partner for regional and national financial
institutions that are seeking to increase their market
penetration. Over 9,500 of our Company-owned ATMs are under
contract with well-known banks to place their logos on those
machines and provide
surcharge-free
access to their customers, making us the largest non-bank owner
and operator of bank-branded ATMs in the United States. We also
operate the Allpoint network, which sells surcharge-free access
to financial institutions that lack a significant ATM network.
We believe that Allpoint is the largest surcharge-free network
of ATMs in the United States based on the number of
participating ATMs.
Our Company-owned ATMs, which represent over 62% of our ATM
portfolio, are deployed with leading retail merchants under
long-term contracts with initial terms generally of five to
seven years. These merchant customers operate high consumer
traffic locations, such as convenience stores, supermarkets,
membership warehouses, drug stores, shopping malls, and
airports. Based on our revenues, 7-Eleven, BP Amoco, Chevron,
Costco, CVS Pharmacy, Duane Reade, ExxonMobil, Hess Corporation,
Rite Aid, Sunoco, Target, Walgreens, and Winn-Dixie are our
largest merchant customers in the United States; Alfred Jones,
Martin McColl (formerly TM Retail), McDonalds, The Noble
Organisation, Odeon Cinemas, Spar, Tates, and Vue Cinemas are
our largest merchant customers in the United Kingdom; and Cadena
Comercial OXXO S.A. de C.V. (OXXO) and Farmacia
Guadalajara S.A. de C.V. (Fragua) are our largest
merchant customers in Mexico.
As operator of the worlds largest network of ATMs, we
believe we are well-positioned to increase the size of our
network through both internal growth and through acquisitions.
On July 20, 2007, we purchased substantially all of the
assets of the financial services business of
7-Eleven,
which included 5,500 ATMs located in
7-Eleven
stores across the United States. Approximately 2,000 of the
acquired ATMs are advanced-functionality financial services
kiosks branded as
Vcomtm
units. We also entered into a placement agreement that gives us
the exclusive right, subject to certain conditions, to operate
all of the ATMs and
Vcomtm
units in existing and future
7-Eleven
store locations in the United States for the next 10 years.
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Our revenue is recurring in nature and is primarily derived from
ATM surcharge fees, which are paid by cardholders, and
interchange fees, which are fees paid by the cardholders
financial institution for the use of the applicable electronic
funds transfer (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 and added convenience for their customers
and increased usage of our ATMs. Our branding arrangements
include relationships with leading national financial
institutions, including Citibank, HSBC, JPMorgan Chase, and
Sovereign Bank. We also generate revenue by collecting fees from
financial institutions that participate in the Allpoint
surcharge-free network.
For the year ended December 31, 2006 and the nine months
ended September 30, 2007, we processed over
192.1 million and 155.1 million withdrawal
transactions, respectively, on a pro forma basis, which resulted
in approximately $16.4 billion and $14.1 billion,
respectively, in cash disbursements. Excluding the pro forma
effects of the 7-Eleven ATM Transaction, we processed over
125.1 million and 113.9 million withdrawal
transactions, respectively, resulting in approximately
$10.7 billion and $8.9 billion, respectively, in cash
disbursements. In addition, for the year ended December 31,
2006 and the nine months ended September 30, 2007, we
processed over 72.3 million and 67.3 million,
respectively, of other ATM transactions on a pro forma basis,
which included balance inquiries, fund transfers, and other
non-withdrawal transactions. Excluding the pro forma effects of
the 7-Eleven ATM Transaction, we processed over
47.7 million and 52.2 million, respectively, of other
ATM transactions.
For the year ended December 31, 2006 and the nine months
ended September 30, 2007, we generated pro forma revenues
of $457.3 million and $349.9 million, respectively,
which included approximately $18.0 million and
$4.2 million in revenues associated with past upfront
payments received by 7-Eleven in connection with the development
and provision of certain advanced-functionality services through
the
Vcomtm
units. Such payments, which we refer to as placement fees,
related to arrangements that ended prior to our acquisition of
the financial services business of 7-Eleven, and thus will not
continue in the future. While we believe we will continue to
earn some placement fee revenues related to the acquired
financial services business of 7-Eleven, we expect those amounts
to be substantially less than those earned historically.
Excluding these fees, our pro forma revenues for these periods
would have totaled $439.3 million and $345.7 million,
respectively, which reflect the transaction growth experienced
on our network. Excluding the pro forma effects of the 7-Eleven
ATM Transaction, we generated revenues of $293.6 million
and $262.3 million, respectively, for the year ended
December 31, 2006 and nine months ended September 30,
2007.
Our recent transaction and revenue growth have primarily been
driven by investments that we have made in certain strategic
growth initiatives and we expect these initiatives will continue
to drive revenue growth and margin improvement. However, such
investments have negatively affected our current year operating
profits and related margins. For example, we have significantly
increased the number of Company-owned ATMs in our United Kingdom
and Mexico operations during the past year. While such
deployments have resulted in an increase in revenues, they have
negatively impacted our operating margins, as transactions for
many of those machines have yet to reach the higher consistent
recurring transaction levels seen in our more mature ATMs.
Additionally, we have recently increased our investment in sales
and marketing personnel to take advantage of what we believe are
opportunities to capture additional market share in our existing
markets and to provide enhanced service offerings to financial
institutions. We have also incurred additional costs to develop
our in-house transaction processing capabilities to better serve
our clients and maximize our revenue opportunities. Additional
costs were also necessary to meet the triple data security
encryption standard (Triple-DES) adopted by the EFT
networks. Finally, we recorded $5.3 million in impairment
charges during the nine months ended September 30, 2007,
$5.1 million of which related to our merchant contract with
Target, which we acquired in 2004, as the anticipated future
cash
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flows are not expected to be sufficient to cover the carrying
value of the related intangible asset. We have been in
discussions with this merchant customer 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. For additional discussion of
this impairment, see Managements Discussion and
Analysis of Financial Condition and Results of
Operations Three and Nine Months Ended
September 30, 2007 and 2006 Amortization
Expense.
All these expenditures have adversely impacted our pro forma
operating income, which totaled $27.5 million and
$11.1 million for the year ended December 31, 2006 and
nine months ended September 30, 2007, respectively
(excluding the upfront placement fees associated with the
acquired financial services business of 7-Eleven that are not
expected to continue in the future). Excluding the pro forma
effects of the 7-Eleven ATM Transaction, our operating income
totaled $20.1 million and $5.9 million for the year
ended December 31, 2006 and nine months ended
September 30, 2007, respectively. Furthermore, on a
historical basis, we generated net losses of $0.5 million
and $19.7 million for the year ended December 31, 2006
and nine months ended September 30, 2007, respectively.
Our
Strengths
Leading Market Position. We operate the
worlds largest network of ATMs. Our network currently
includes over 31,500 ATMs located throughout the United States,
the United Kingdom, and Mexico. We are also the largest non-bank
owner and operator of bank-branded ATMs in the United States and
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 size and diversity of products
and services give us significant economies of scale and the
ability to provide attractive and efficient solutions to
national and regional financial institutions and retailers.
Network of Leading Retail Merchants Under Multi-Year
Contracts. We have developed significant
relationships with national and regional merchants within the
United States, the United Kingdom, and Mexico. These merchants
typically operate high-traffic locations, which we have found to
result in increased ATM activity and profitability. Our
contracts with our merchant customers are typically multi-year
arrangements with initial terms of five to seven years. As of
September 30, 2007, our contracts with our top 10 merchant
customers had a weighted average remaining life based on
revenues of 8 years, including the ten-year placement
agreement that we entered into with
7-Eleven in
July 2007. These long-term relationships can provide
opportunities to deploy additional ATMs in new locations. We
believe our merchant customers value our high level of service,
our 24-hour
per day monitoring and accessibility, and that our
U.S. ATMs are on-line and able to serve customers an
average of 98.5% of the time.
Recurring and Stable Revenue and Operating Cash
Flow. The long-term contracts that we enter into
with our merchant customers provide us with access to customer
traffic and relatively stable, recurring revenue. Additionally,
our branding arrangements and surcharge-free initiatives provide
us with additional revenue under long-term contracts that is
generally not based on the number of transactions per ATM. On a
pro forma basis for the nine months ended September 30,
2007, we derived approximately 95% of our total revenues from
recurring ATM transaction and branding fees. 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 as well as invest in future growth
initiatives.
Low-Cost Provider. We believe the size of our
network combined with our operating infrastructure allows us to
be among the low-cost providers in our industry. We believe our
operating costs per ATM are significantly lower than the
operating costs incurred by bank ATM
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operators. Our scale provides us with a competitive advantage
both in operating our ATM fleet and completing acquisitions of
additional ATM portfolios as well as the potential to offer cost
effective outsourcing services to financial institutions.
Technological Expertise. We have developed,
and are continuing to develop, significant new technological
capabilities that could enhance the services we are able to
provide ATM users, financial institutions, and our merchant
customers. Our in-house transaction processing capability, which
had been rolled out to approximately 10,000 of our ATMs as
of October 31, 2007, will allow us to control ATM screen
flow, enabling us to provide customized branding and messaging
opportunities as ATM transactions are processed. In addition,
our advanced-functionality ATMs are capable of performing check
cashing, deposit taking at off-premise ATMs, which are ATMs not
located in a bank branch, using electronic imaging, bill
payments, and other kiosk-based financial services. The depth
and breadth of our technical expertise gives us a competitive
advantage in capitalizing on an ATM service model which has and
will continue to evolve.
Proven Ability to Grow through Acquisitions and International
Expansion. Since April 2001, we have acquired 14
networks of ATMs and one operator of a surcharge-free ATM
network, increasing the number of ATMs we operate from
approximately 4,100 to over 31,500 as of September 30,
2007. The majority of these acquisitions have been ATM portfolio
or asset acquisitions, although we have also completed business
acquisitions such as the
7-Eleven ATM
Transaction. We believe the risks of integration associated with
our ATM portfolio acquisition growth are reduced because we do
not typically assume significant numbers of employees nor import
new operating systems in connection with our acquisitions.
Additionally, as a result of our relatively lower cost of
operations and significant experience in ATM management, in many
cases we have improved the operating cash flow of our acquired
networks of ATMs and achieved high returns on capital for such
transactions. We have also successfully expanded our business
into the United Kingdom and Mexico. For the nine months ended
September 30, 2007, our international operations
contributed approximately 14% and 18% of our total revenues and
operating income, respectively, on a pro forma basis. We believe
that our proven ability to grow through acquisitions and
international expansion positions us to take advantage of
additional growth opportunities.
Experienced Management Team. Our management
team has significant financial services and payment
processing-related experience and has developed extensive
relationships and a leadership position in the industry,
including directorships on several industry association boards.
We believe this expertise helps us to attract new merchant
customers and provides us with increased acquisition and bank
branding opportunities. Our management team currently owns
approximately 24% of our outstanding common stock on a fully
diluted basis and is expected to own approximately 15%
after the completion of this offering.
Our Market
Opportunity
As the worlds leading operator of ATMs, we believe there
are significant opportunities to grow our business.
Merchant Network Opportunities. Many of our
existing national and regional retail merchant customers do not
have ATMs in all of their retail locations and are adding new
locations as they grow their businesses. Although we are not the
exclusive provider of ATMs to a majority of these merchant
customers, and thus may experience competition for the right to
deploy additional ATMs in these new locations, we believe that
we are well positioned to capitalize on these growth
opportunities as we are often the primary ATM solutions provider
for these merchants. In addition to these existing merchant
customer opportunities, we have also targeted over
100 national or regional retailers who operate thousands of
retail locations and are not currently customers.
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Bank Branding and Outsourcing
Opportunities. We believe that by branding our
Company-owned ATMs with the logos of banks and other financial
institutions, those institutions can interact with their
customers more frequently, increase brand awareness, and provide
additional services, including surcharge-free access to cash, at
a lower cost than traditional marketing and distribution
channels. Additionally, we are in the process of completing an
initiative that will allow us to control the flow and content of
information on the ATM screen, which we expect will enable us to
offer customized branding solutions to financial institutions,
including one-to-one marketing and advertising services on the
ATM screen. We believe that our relatively lower cost of
operations and significant experience in ATM management provide
us with future revenue opportunities as banks and other
financial institutions look to outsource certain ATM management
functions to simplify operations and lower their costs.
Surcharge-Free Network Opportunities. The
Allpoint network, which we believe is the largest surcharge-free
network in the United States based on the number of
participating ATMs, allows us to profitably participate in the
portion of the ATM market not already served by our
surcharge-based business model. Future growth opportunities
exist for us in the surcharge-free ATM market as smaller
financial institutions continue to look for cost-effective ways
to offer convenient, surcharge-free ATM access to their
customers, such as access through the Allpoint network.
Advanced-Functionality
Opportunities. 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
opportunities exist for us as the operator of the worlds
largest network of ATMs to provide advanced-functionality
services, such as check cashing, off-premise deposit taking
using electronic imaging, money transfer, and bill payment. We
are currently offering these advanced-functionality services
through the 2,000
Vcomtm
units acquired as part of the 7-Eleven ATM Transaction. Pursuing
advanced-functionality opportunities involve associated risks
and costs as more fully described in Risk Factors
and Managements Discussion and Analysis of Financial
Condition and Results of Operations. We are currently
incurring, and expect to continue to incur, operating losses
from the acquired
Vcomtm
operations. For the period from the acquisition date
(July 20, 2007) through September 30, 2007, we
incurred a $2.1 million loss associated with the acquired
Vcomtm
operations. If our cumulative losses exceed $10.0 million,
including $1.5 million in contract termination costs, we
currently intend to terminate the
Vcomtm
services and utilize the existing
Vcomtm
units to provide traditional ATM services. While we are not
currently pursuing advanced functionality outside of our V-com
units, we may pursue other advanced-functionality opportunities
as described under Our Strategy below
notwithstanding our determination as to V-com services.
International Opportunities. International
markets are experiencing an increase in off-premise ATMs as
consumers seek convenient access to cash. We believe that
significant growth opportunities continue to exist in those
international markets where cash is the predominant form of
payment utilized by consumers and where off-premise ATM
penetration is still relatively low.
Our
Strategy
Our strategy is to enhance our position as the leading owner and
operator of ATMs in the United States, to become a significant
service provider to financial institutions, and to expand our
network further into select international markets. In order to
execute this strategy we will endeavor to:
Increase Penetration and ATM Count with Leading
Merchants. We have two principal opportunities to
increase the number of ATM sites with our existing merchants:
first, by
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deploying ATMs in our merchants existing locations that
currently do not have, but where traffic volumes justify
installing, an ATM; and second, as our merchants open new
locations, by installing ATMs in those locations. We believe our
expertise, national footprint, strong record of customer service
with leading merchants, and our significant scale position us to
successfully market to, and enter into long-term contracts with,
additional leading national and regional merchants.
Capitalize on Existing Opportunities to Become a Significant
Service Provider to Financial Institutions. We
believe we are strongly positioned to work with financial
institutions to fulfill many of their ATM requirements. Our ATM
services offered to financial institutions include branding our
ATMs with their logos and providing surcharge-free access to
their customers, managing their off-premise ATM networks on an
outsourced basis, or buying their off-premise ATMs in
combination with branding arrangements. In addition, the
development of our in-house processing capability will provide
us with the ability to control the content of the information
appearing on the screens of our ATMs, which should in turn serve
to increase the types of products and services that we will be
able to offer to financial institutions.
Capitalize on Surcharge-Free Network
Opportunities. We plan to continue to pursue
opportunities with respect to our surcharge-free networks, where
financial institutions pay us to allow surcharge-free access to
our ATM network for their customers on a non-exclusive basis. We
believe this arrangement will enable us to increase transaction
counts and profitability on our existing machines. Additionally,
we plan to expand our Allpoint surcharge-free network to the
United Kingdom and Mexico in the future.
Develop and Provide Selected Advanced-Functionality
Services. ATMs have and continue to evolve in
terms of service offerings. Certain advanced ATM models are
capable of providing check cashing, off-premise deposit taking
services using electronic imaging, money transfer, and bill
payment services. Our
Vcomtm
units are capable of providing many of these services.
Irrespective of our ultimate decision on the continued operation
of our
Vcomtm
units as described above, we believe the advanced functionality
offered by our
Vcomtm
units and other machines we or others may develop, provides
additional growth opportunities as retailers and financial
institutions seek to provide additional convenient self-service
financial services to their customers.
Pursue International Growth Opportunities. We
have recently invested significant amounts in the infrastructure
of our United Kingdom and Mexico operations, and we plan to
continue to increase the number of our Company-owned ATMs in
these markets through machines deployed with our existing
customer base as well as through the addition of new merchant
customers. Additionally, we plan to expand our operations into
selected international markets where we believe we can leverage
our operational expertise and scale advantages. In particular,
we are targeting high growth emerging markets where cash is the
predominant form of payment and where off-premise ATM
penetration is relatively low, such as Central and Eastern
Europe, China, India and Brazil.
Risk
Factors
While we have summarized our above strengths, market
opportunity, and strategy, there are numerous risks and
uncertainties unique to our business and industry which may
prevent us from capitalizing on our strengths and market
opportunities, or from successfully executing our strategy.
Examples of these risks include the following:
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We have recently seen a decline in the average number of
merchant-owned ATMs that we operate in the United States of
14.1% in 2006 and 4.2% during the nine months ended
September 30, 2007.
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The U.S. 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)
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for their in-store purchases over traditional paper-based forms
of payment (e.g., cash and checks).
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We have incurred substantial losses in the past and may continue
to incur losses in the future.
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We currently expect to incur operating losses associated with
providing advanced-functionality services through our
Vcomtm
units within the first
12-18 months
subsequent to the 7-Eleven ATM Transaction.
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We derive a substantial portion of our revenues from ATMs placed
with a small number of merchants, with 7-Eleven comprising 35.8%
of our pro forma revenues for the year ended December 31,
2006.
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We have a substantial amount of indebtedness. As of
September 30, 2007, we had outstanding indebtedness of
approximately $408.9 million, which represents
approximately 95.9% of our total capitalization of
$426.4 million.
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For a more complete description of the risks associated with an
investment in us, you should read and carefully consider the
matters described under Risk Factors. These risks
could materially and adversely impact our business, financial
condition, operating results, and cash flows, which could cause
the trading price of our common stock to decline and could
result in partial or total loss of your investment.
Our Executive
Offices
Our principal executive offices are located at 3110 Hayes Road,
Suite 300, Houston, Texas 77082, and our telephone number
is
(281) 596-9988.
Our website address is www.cardtronics.com.
Information contained on our website is not part of this
prospectus.
7
THE
OFFERING
|
|
|
Common stock offered |
|
12,000,000 shares |
|
|
|
|
|
|
Total offering |
|
12,000,000 shares |
|
|
|
Common stock outstanding after the offering |
|
38,514,125 shares (31.2% of which are the shares being
offered in this offering) |
|
|
|
Use of proceeds |
|
We estimate that our net proceeds from this offering, after
deducting underwriting discounts and commissions and estimated
offering expenses, will be approximately $115.7 million,
assuming an initial public offering price of $10.50 per share,
which is the midpoint of the range set forth on the cover page
of this prospectus. |
|
|
|
|
|
We intend to use the net proceeds we receive from this offering: |
|
|
|
to pay down approximately $105.6 million of
indebtedness under our credit facility; and
|
|
|
|
for working capital and general corporate purposes.
See Use of Proceeds.
|
|
|
|
|
|
We will not receive any of the proceeds from the sale of shares
of our common stock by certain stockholders if the underwriters
exercise their over-allotment option. See Principal
Stockholders. |
|
|
|
Dividend policy |
|
We do not expect to pay any dividends on our common stock for
the foreseeable future. |
|
Nasdaq Global Market symbol |
|
CATM |
|
Risk Factors |
|
See Risk Factors beginning on page 15 of this
prospectus for a discussion of factors that you should carefully
consider before deciding to invest in shares of our common stock. |
Unless specifically indicated otherwise or unless the context
otherwise requires, the information in this prospectus gives
effect to (1) the conversion of all Series B
Convertible Preferred Stock into common stock, which includes
the effect of an additional share issuance to TA Associates Inc.
(TA Associates) concurrent with the closing of this
offering, and a stock split in the form of a stock dividend of
our common stock immediately prior to the closing of the
offering, all as described in more detail in Certain
Relationships and Related Party Transactions; and
(2) no exercise of the underwriters over-allotment
option. See Certain Relationships and Related Party
Transactions Preferred Stock Private Placement with
TA Associates and Description of Capital Stock.
8
The number of shares of common stock that will be outstanding
after the offering is based on the number of shares outstanding
as of September 30, 2007. This number does not include:
|
|
|
|
|
5,101,911 shares of common stock that will be issuable upon
the exercise of stock options outstanding under the 2001 Stock
Incentive Plan subsequent to the offering;
|
|
|
|
|
|
an aggregate of 40,977 shares of common stock reserved for
future issuance under our 2001 Stock Incentive Plan; and
|
|
|
|
|
|
any shares of common stock reserved for future issuance under
our 2007 Stock Incentive Plan, which was approved in August 2007.
|
Affiliates of Banc of America Securities LLC and
J.P. Morgan Securities Inc. are lenders under our revolving
credit facility and will receive a portion of the proceeds of
this offering, which will be used to repay in full the amount
outstanding under the revolving credit facility. See Use
of Proceeds and Underwriting. These
underwriters, through their affiliates, may be deemed to receive
financial benefits as a result of the consummation of this
offering beyond the benefits customarily received by
underwriters in similar offerings.
9
SUMMARY
HISTORICAL CONSOLIDATED AND PRO FORMA
FINANCIAL AND OPERATING DATA
The summary consolidated balance sheet data for Cardtronics as
of December 31, 2005 and 2006 and the summary consolidated
statements of operations and cash flows data for Cardtronics for
the years ended December 31, 2004, 2005, and 2006 have been
derived from our audited consolidated financial statements
included elsewhere in this prospectus. The summary consolidated
balance sheet data for Cardtronics as of September 30, 2007
and the summary consolidated statements of operations data for
Cardtronics for the nine months ended September 30, 2006
and 2007 have been derived from our unaudited interim condensed
consolidated financial statements included elsewhere in this
prospectus. The unaudited interim period financial information,
in the opinion of management, includes all adjustments, which
are normal and recurring in nature, necessary for a fair
presentation for the periods shown. Our unaudited interim period
financial information includes the results of the acquired
financial services business of 7-Eleven subsequent to the
acquisition date of July 20, 2007. Results for the nine
months ended September 30, 2007 are not necessarily
indicative of the results to be expected for the full year.
The summary unaudited pro forma condensed consolidated
statements of operations data for the year ended
December 31, 2006 and the nine months ended
September 30, 2007 have been derived from the unaudited pro
forma condensed consolidated financial statements included
elsewhere in this prospectus. The summary unaudited pro forma
condensed consolidated statements of operations have been
prepared to give effect to the 7-Eleven ATM Transaction and the
related financing transactions as if each had occurred on
January 1, 2006.
The pro forma adjustments are based upon available information
and certain assumptions that we believe are reasonable. The
unaudited pro forma financial information is provided for
informational purposes only. The summary unaudited pro forma
condensed consolidated financial data do not purport to
represent what our results of operations or financial position
actually would have been if the 7-Eleven ATM Transaction or the
related financing transactions had occurred on the dates
indicated, nor do such data purport to project the results of
operations for any future period.
The summary consolidated and pro forma condensed consolidated
financial and operating data should be read in conjunction with
Selected Historical Consolidated Financial and Operating
Data, Unaudited Pro Forma Condensed Consolidated
Financial Statements, Managements Discussion
and Analysis of Financial Condition and Results of
Operations, and the consolidated financial statements and
related notes appearing elsewhere in this prospectus.
10
Cardtronics,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
Ended
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
Consolidated Statements of Operations Data:
|
|
(in thousands, except share, per share, and
per withdrawal transaction statistics)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
182,711
|
|
|
$
|
258,979
|
|
|
$
|
280,985
|
|
|
$
|
416,961
|
|
|
$
|
209,542
|
|
|
$
|
251,854
|
|
|
$
|
331,167
|
|
Vcomtm
operating
revenues (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,686
|
|
|
|
|
|
|
|
685
|
|
|
|
8,882
|
|
ATM product sales and other revenues
|
|
|
10,204
|
|
|
|
9,986
|
|
|
|
12,620
|
|
|
|
12,620
|
|
|
|
9,218
|
|
|
|
9,805
|
|
|
|
9,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
192,915
|
|
|
|
268,965
|
|
|
|
293,605
|
|
|
|
457,267
|
|
|
|
218,760
|
|
|
|
262,344
|
|
|
|
349,854
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization, shown separately
below)(2)(3)(4)
|
|
|
143,504
|
|
|
|
199,767
|
|
|
|
209,850
|
|
|
|
309,433
|
|
|
|
157,225
|
|
|
|
191,046
|
|
|
|
249,891
|
|
Cost of
Vcomtm
operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,309
|
|
|
|
|
|
|
|
2,644
|
|
|
|
11,770
|
|
Cost of ATM product sales and other revenues
|
|
|
8,703
|
|
|
|
9,681
|
|
|
|
11,443
|
|
|
|
11,443
|
|
|
|
8,142
|
|
|
|
9,196
|
|
|
|
9,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
152,207
|
|
|
|
209,448
|
|
|
|
221,293
|
|
|
|
337,185
|
|
|
|
165,367
|
|
|
|
202,886
|
|
|
|
270,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
40,708
|
|
|
|
59,517
|
|
|
|
72,312
|
|
|
|
120,082
|
|
|
|
53,393
|
|
|
|
59,458
|
|
|
|
78,997
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
expenses (5)(6)
|
|
|
13,571
|
|
|
|
17,865
|
|
|
|
21,667
|
|
|
|
27,580
|
|
|
|
15,709
|
|
|
|
20,985
|
|
|
|
23,422
|
|
Depreciation and accretion expense
|
|
|
6,785
|
|
|
|
12,951
|
|
|
|
18,595
|
|
|
|
23,702
|
|
|
|
14,072
|
|
|
|
18,541
|
|
|
|
21,357
|
|
Amortization
expense (7)
|
|
|
5,508
|
|
|
|
8,980
|
|
|
|
11,983
|
|
|
|
23,297
|
|
|
|
9,610
|
|
|
|
14,062
|
|
|
|
18,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
25,864
|
|
|
|
39,796
|
|
|
|
52,245
|
|
|
|
74,579
|
|
|
|
39,391
|
|
|
|
53,588
|
|
|
|
63,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
14,844
|
|
|
|
19,721
|
|
|
|
20,067
|
|
|
|
45,503
|
|
|
|
14,002
|
|
|
|
5,870
|
|
|
|
15,315
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net (8)
|
|
|
5,235
|
|
|
|
22,426
|
|
|
|
25,072
|
|
|
|
39,333
|
|
|
|
18,769
|
|
|
|
21,592
|
|
|
|
29,172
|
|
Other (9)
|
|
|
228
|
|
|
|
983
|
|
|
|
(4,986
|
)
|
|
|
(4,986
|
)
|
|
|
(868
|
)
|
|
|
751
|
|
|
|
751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
5,463
|
|
|
|
23,409
|
|
|
|
20,086
|
|
|
|
34,347
|
|
|
|
17,901
|
|
|
|
22,343
|
|
|
|
29,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
9,381
|
|
|
|
(3,688
|
)
|
|
|
(19
|
)
|
|
|
11,156
|
|
|
|
(3,899
|
)
|
|
|
(16,473
|
)
|
|
|
(14,608
|
)
|
Income tax provision (benefit)
|
|
|
3,576
|
|
|
|
(1,270
|
)
|
|
|
512
|
|
|
|
4,658
|
|
|
|
(1,217
|
)
|
|
|
3,212
|
|
|
|
3,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
5,805
|
|
|
|
(2,418
|
)
|
|
|
(531
|
)
|
|
|
6,498
|
|
|
|
(2,682
|
)
|
|
|
(19,685
|
)
|
|
|
(17,820
|
)
|
Preferred stock dividends and accretion expense
|
|
|
2,312
|
|
|
|
1,395
|
|
|
|
265
|
|
|
|
265
|
|
|
|
199
|
|
|
|
200
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
3,493
|
|
|
$
|
(3,813
|
)
|
|
$
|
(796
|
)
|
|
$
|
6,233
|
|
|
$
|
(2,881
|
)
|
|
$
|
(19,885
|
)
|
|
$
|
(18,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.56
|
|
|
$
|
(2.16
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
3.56
|
|
|
$
|
(1.64
|
)
|
|
$
|
(11.28
|
)
|
|
$
|
(10.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.47
|
|
|
$
|
(2.16
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
2.17
|
|
|
$
|
(1.64
|
)
|
|
$
|
(11.28
|
)
|
|
$
|
(10.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,238,801
|
|
|
|
1,766,419
|
|
|
|
1,749,328
|
|
|
|
1,749,328
|
|
|
|
1,752,442
|
|
|
|
1,762,200
|
|
|
|
1,762,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
2,372,204
|
|
|
|
1,766,419
|
|
|
|
1,749,328
|
|
|
|
2,872,271
|
|
|
|
1,752,442
|
|
|
|
1,762,200
|
|
|
|
1,762,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
Ended
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
Pro forma share and per share
data(10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.19
|
|
|
$
|
(0.26
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
0.44
|
|
|
$
|
(0.20
|
)
|
|
$
|
(1.38
|
)
|
|
$
|
(1.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.18
|
|
|
$
|
(0.26
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
0.27
|
|
|
$
|
(0.20
|
)
|
|
$
|
(1.38
|
)
|
|
$
|
(1.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,304,045
|
|
|
|
14,441,932
|
|
|
|
14,302,199
|
|
|
|
14,302,199
|
|
|
|
14,327,659
|
|
|
|
14,407,442
|
|
|
|
14,407,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
19,394,724
|
|
|
|
14,441,932
|
|
|
|
14,302,199
|
|
|
|
23,483,184
|
|
|
|
14,327,659
|
|
|
|
14,407,442
|
|
|
|
14,407,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
$
|
20,466
|
|
|
$
|
33,227
|
|
|
$
|
25,446
|
|
|
|
|
|
|
$
|
16,867
|
|
|
$
|
35,189
|
|
|
|
|
|
Cash flows from investing activities
|
|
$
|
(118,926
|
)
|
|
$
|
(139,960
|
)
|
|
$
|
(35,973
|
)
|
|
|
|
|
|
$
|
(25,933
|
)
|
|
$
|
(179,469
|
)
|
|
|
|
|
Cash flows from financing activities
|
|
$
|
94,318
|
|
|
$
|
107,214
|
|
|
$
|
11,192
|
|
|
|
|
|
|
$
|
7,773
|
|
|
$
|
147,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (11)
|
|
$
|
26,909
|
|
|
$
|
40,669
|
|
|
$
|
55,631
|
|
|
$
|
97,488
|
|
|
$
|
38,552
|
|
|
$
|
37,722
|
|
|
$
|
54,824
|
|
Capital
expenditures (12):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance capital expenditures
|
|
$
|
2,354
|
|
|
$
|
1,680
|
|
|
$
|
2,384
|
|
|
$
|
9,599
|
|
|
$
|
1,910
|
|
|
$
|
5,740
|
|
|
$
|
6,611
|
|
Growth capital expenditures
|
|
|
17,393
|
|
|
|
30,246
|
|
|
|
33,707
|
|
|
|
45,818
|
|
|
|
24,111
|
|
|
|
39,598
|
|
|
|
43,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
19,747
|
|
|
$
|
31,926
|
|
|
$
|
36,091
|
|
|
$
|
55,417
|
|
|
$
|
26,021
|
|
|
$
|
45,338
|
|
|
$
|
49,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of transacting
ATMs(13)
|
|
|
17,936
|
|
|
|
26,164
|
|
|
|
25,778
|
|
|
|
31,301
|
|
|
|
25,913
|
|
|
|
27,149
|
|
|
|
31,033
|
|
Total transactions (in thousands)
|
|
|
111,577
|
|
|
|
156,851
|
|
|
|
172,808
|
|
|
|
264,431
|
|
|
|
128,539
|
|
|
|
166,183
|
|
|
|
222,360
|
|
Total withdrawal transactions (in thousands)
|
|
|
86,821
|
|
|
|
118,960
|
|
|
|
125,078
|
|
|
|
192,107
|
|
|
|
93,756
|
|
|
|
113,934
|
|
|
|
155,100
|
|
Per withdrawal transaction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
2.10
|
|
|
$
|
2.18
|
|
|
$
|
2.25
|
|
|
$
|
2.17
|
|
|
$
|
2.23
|
|
|
$
|
2.21
|
|
|
$
|
2.14
|
|
ATM operating gross profit (exclusive of depreciation,
accretion, and
amortization)(4)(14)
|
|
$
|
0.45
|
|
|
$
|
0.50
|
|
|
$
|
0.57
|
|
|
$
|
0.56
|
|
|
$
|
0.56
|
|
|
$
|
0.53
|
|
|
$
|
0.52
|
|
ATM operating gross profit margin (exclusive of depreciation,
accretion, and
amortization)(4)
|
|
|
21.4
|
%
|
|
|
22.9
|
%
|
|
|
25.3
|
%
|
|
|
25.8
|
%
|
|
|
25.0
|
%
|
|
|
24.1
|
%
|
|
|
24.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
As of December 31,
|
|
|
September 30, 2007
|
|
|
|
2005
|
|
|
2006
|
|
|
Actual
|
|
|
As
Adjusted(15)
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,699
|
|
|
$
|
2,718
|
|
|
$
|
6,118
|
|
|
$
|
16,198
|
|
Total assets
|
|
|
343,751
|
|
|
|
367,756
|
|
|
|
562,201
|
|
|
|
572,281
|
|
Total long-term debt and capital lease obligations, including
current portion
|
|
|
247,624
|
|
|
|
252,895
|
|
|
|
408,910
|
|
|
|
303,310
|
|
Preferred
stock(16)
|
|
|
76,329
|
|
|
|
76,594
|
|
|
|
76,794
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(49,084
|
)
|
|
|
(37,168
|
)
|
|
|
(59,329
|
)
|
|
|
133,145
|
|
12
|
|
|
(1)
|
|
Includes upfront placement fee
revenues of $18.7 million and $4.8 million for the pro
forma year ended December 31, 2006 and the pro forma nine
months ended September 30, 2007, respectively, received by
7-Eleven related to the acquired
Vcomtm
operations, of which $18.0 million and $4.2 million,
respectively, relate to arrangements that ended prior to our
acquisition and thus, are not expected to continue in the future.
|
|
(2)
|
|
Includes expense reductions of
$7.5 million and $4.4 million for the pro forma year
ended December 31, 2006 and pro forma nine months ended
September 30, 2007, respectively. These amounts reflect the
pro forma purchase accounting adjustments made with respect to
certain unfavorable leases and an unfavorable contract assumed
in connection with the
7-Eleven ATM
Transaction. Although these adjustments will serve to reduce our
future expense recorded for the cost of ATM operating revenues,
we will still be required to pay the higher rates stipulated in
the assumed leases and contract for the remaining terms of such
agreements, the substantial majority of which expire in 2009.
|
|
(3)
|
|
Includes $0.9 million of
inventory adjustments for the year ended December 31, 2006
(both on a historical and pro forma basis), the majority of
which related to our Triple-DES upgrade efforts. Also includes
$1.7 million of costs incurred related to our efforts to
convert our ATM portfolio over to our in-house transaction
processing switch and $0.5 million of inventory cost
adjustments related to our Triple-DES upgrade efforts for the
nine months ended September 30, 2007 (both on a historical
and pro forma basis).
|
|
(4)
|
|
Excludes effects of depreciation,
accretion, and amortization expense of $11.4 million,
$20.6 million, and $29.2 million for the years ended
December 31, 2004, 2005, and 2006, respectively,
$45.6 million for the pro forma year ended
December 31, 2006, $22.6 million and
$31.3 million for the nine month periods ended
September 30, 2006 and 2007, respectively, and
$39.0 million for the pro forma nine month period ended
September 30, 2007.
|
|
(5)
|
|
Includes non-cash stock-based
compensation totaling $1.0 million, $2.2 million, and
$0.8 million in 2004, 2005 and 2006, respectively,
$0.6 million for the nine months ended September 30,
2006, $0.7 million for the nine months ended
September 30, 2007, and $0.8 million and
$0.7 million for the pro forma year ended December 31,
2006 and the pro forma nine months ended September 30,
2007, respectively, related to options granted to certain
employees and a restricted stock grant made to our Chief
Executive Officer in 2003. Additionally, the 2004 results
include a bonus of $1.8 million paid to our Chief Executive
Officer related to the tax liability associated with such
restricted stock grant. See Note 3 to our consolidated
financial statements.
|
|
(6)
|
|
Includes the write-off in 2004 of
approximately $1.8 million in costs associated with our
decision to not pursue a financing transaction to completion.
|
|
(7)
|
|
Includes pre-tax impairment charges
of $1.2 million and $2.8 million in 2005 and 2006,
respectively, and $2.8 million and $5.3 million for
the nine months ended September 30, 2006 and 2007,
respectively, and the pro forma year ended December 31,
2006 and the pro forma nine months ended September 30,
2007, respectively.
|
|
(8)
|
|
Includes the write-off of
$5.0 million and $0.5 million of deferred financing
costs in 2005 and 2006, respectively, and $0.5 million for
the nine months ended September 30, 2006 as a result of
(i) amendments to our existing 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.
|
|
(9)
|
|
The Other line item in
2004 and 2005 primarily consists of losses on the sale or
disposal of assets. Other in 2006 (both on a
historical and pro forma basis) reflects the recognition of
approximately $4.8 million in other income primarily
related to settlement proceeds received from Winn-Dixie Stores,
Inc. (Winn-Dixie), one of our merchant customers, as
part of that companys successful 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, which were partially
offset by $1.6 million of losses on the sale or disposal of
fixed assets during the year. Finally, Other for the
nine months ended September 30, 2007 (both on a historical
and pro forma basis) includes $1.5 million of losses on the
disposal of fixed assets, which were partially offset by
$0.6 million of gains related to the sale of the Winn-Dixie
equity securities, which we received from Winn-Dixie in 2006 as
a part of its bankruptcy settlement.
|
|
|
|
(10)
|
|
Gives effect to the anticipated
stock split of our common stock in connection with the offering.
The stock split reflected in the above pro forma net income
(loss) per common share amounts reflects (i) the conversion
mechanics applicable to the Series B Convertible Preferred
Stock held by TA Associates, as described in Certain
Relationships and Related Party Transactions,
(ii) the conversion of the remaining Series B
Convertible Preferred Stock into an equal number of common
shares, and (iii) a resulting 8.1758 to 1 stock split for
all common shares, which will be effected immediately prior to
the closing of the offering. Such amounts assume the offering
occurs at the mid point of the price range reflected on the
cover of this prospectus.
|
|
|
|
(11)
|
|
EBITDA represents net income before
interest expense, income tax expense, and depreciation,
accretion and amortization expense. This term, 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, or GAAP. EBITDA should not be considered in
isolation or as a substitute for operating income, net income,
cash flows from operating, investing, and financing activities
or other income or cash flow statement data prepared in
accordance with GAAP.
|
13
|
|
|
|
|
We believe 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 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 EBITDA as an analytical tool by reviewing the
comparable GAAP measures, understanding the differences between
the measures, and incorporating this knowledge into
managements decision-making process.
|
|
|
|
The following table provides a
reconciliation of EBITDA to net income (loss), its most directly
comparable GAAP financial measure, for each of the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Nine Months Ended
|
|
Ended
|
|
|
Years Ended December 31,
|
|
December 31,
|
|
September 30,
|
|
September 30,
|
|
|
2004
|
|
2005
|
|
2006
|
|
2006
|
|
2006
|
|
2007
|
|
2007
|
|
|
(in thousands)
|
|
Net income (loss)
|
|
$
|
5,805
|
|
|
$
|
(2,418
|
)
|
|
$
|
(531
|
)
|
|
$
|
6,498
|
|
|
$
|
(2,682
|
)
|
|
$
|
(19,685
|
)
|
|
$
|
(17,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
5,235
|
|
|
|
22,426
|
|
|
|
25,072
|
|
|
|
39,333
|
|
|
|
18,769
|
|
|
|
21,592
|
|
|
|
29,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
|
3,576
|
|
|
|
(1,270
|
)
|
|
|
512
|
|
|
|
4,658
|
|
|
|
(1,217
|
)
|
|
|
3,212
|
|
|
|
3,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization, and accretion
|
|
|
12,293
|
|
|
|
21,931
|
|
|
|
30,578
|
|
|
|
46,999
|
|
|
|
23,682
|
|
|
|
32,603
|
|
|
|
40,260
|
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EBITDA
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$
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26,909
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$
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40,669
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$
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55,631
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$
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97,488
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$
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38,552
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$
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37,722
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$
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54,824
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(12)
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Capital expenditure amounts for
Cardtronics Mexico are reflected gross of any minority interest
amounts. Additionally, the 2006 capital expenditure amount
excludes our initial $1.0 million investment in Cardtronics
Mexico.
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(13)
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The historical 2007 average number
of transacting ATMs for the nine months ended September 30,
2007 includes the ATMs acquired in the
7-Eleven ATM
Transaction beginning from the acquisition date (July 20,
2007) and continuing through September 30, 2007. The
historical 2006 average numbers of transacting ATMs for the year
ended December 31, 2006 and nine months ended
September 30, 2006 includes the ATMs of our Mexico
operations beginning from the acquisition date (February 8,
2006) and continuing through December 31, 2006 and
September 30, 2006, respectively.
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(14)
|
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The inclusion in Cost of ATM
operating revenues of the depreciation, accretion, and
amortization expense referenced in Note 4 above would have
reduced our ATM operating gross profit per withdrawal
transaction by $0.13, $0.17, and $0.23 for the years ended
December 31, 2004, 2005, and 2006, respectively, $0.24 for the
pro forma year ended December 31, 2006, $0.24 and $0.27 for
the nine month periods ended September 30, 2006 and 2007,
respectively, and $0.25 for the pro forma nine month period
ended September 30, 2007.
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(15)
|
|
The as adjusted balance sheet
figures give effect to (1) our sale of
12,000,000 shares of our common stock in this offering
(assuming the mid point of the estimated price range set forth
on the cover page of this prospectus), (2) the application
of the estimated net proceeds from the offering as discussed
under Use of Proceeds and (3) the conversion of
all Series B Convertible Preferred Stock into common stock,
which includes the effect of an additional share issuance to TA
Associates concurrent with the closing of this offering and
(4) a stock split in the form of a stock dividend of our
common stock immediately prior to the closing of this offering.
The actual ratio of our stock split may change based on the
ultimate offering price of our common stock and the resulting
conversion ratio of our Series B Convertible Preferred
Stock owned by TA Associates. See Certain Relationships
and Related Party Transactions.
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(16)
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The amount reflected on our balance
sheet is shown net of issuance costs of $1.4 million as of
December 31, 2006 and $1.2 million as of
September 30, 2007. The aggregate redemption price for the
preferred stock was $78.0 million as of September 30,
2007.
|
14
You should carefully consider the following risk factors and
all other information contained in this prospectus before
purchasing our common stock. 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 or results of operations 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 transaction fees for substantially all of our revenues, and
our revenues would be reduced by a decline in the usage of our
ATMs or a decline in the number of ATMs that we
operate.
Transaction fees charged to cardholders and their financial
institutions for transactions processed on our ATMs, including
surcharge and interchange transaction fees, have historically
accounted for most of our revenues. We expect that revenues from
ATM transaction fees, including fees we receive through our bank
and network branding surcharge-free offerings, will continue to
account for a substantial majority of our revenues for the
foreseeable future. Consequently, our future operating results
will depend on (i) the continued market acceptance of our
services in our target markets, (ii) maintaining the level
of transaction fees we receive, (iii) our ability to
install, acquire, operate and retain more ATMs,
(iv) continued usage of our ATMs by cardholders, and
(v) our ability to continue to expand our surcharge-free
offerings. Additionally, it is possible that alternative
technologies to our ATM services will be developed and
implemented. If such alternatives are successful, we will likely
experience a decline in the usage of our ATMs. Moreover,
surcharge fees are set by negotiation between us and our
merchant partners and could change over time. Further, growth in
surcharge-free ATM networks and widespread consumer bias toward
such networks could adversely affect our revenues, even though
we maintain our own surcharge-free offerings.
We have also recently seen a decline in the average number of
ATMs that we operate in the United States. Such decline, which
totaled approximately 6.3% in 2006 and 2.0% during the nine
months ended September 30, 2007, exclusive of ATMs acquired
in the 7-Eleven ATM Transaction, is primarily due to customer
losses experienced in our merchant-owned ATM business, offset
somewhat by new Company-owned ATM locations that were deployed
during the year. The decline in ATMs on the merchant-owned side
of the business of 14.1% in 2006 and 4.2% during the nine
months ended September 30, 2007 was due to (i) an
internal initiative launched by us to identify and eliminate
certain underperforming accounts, and (ii) increased
competition from local and regional independent ATM service
organizations.
We cannot assure you that our ATM transaction fees will not
decline in the future. Accordingly, a decline in usage of our
ATMs by ATM cardholders or in the levels of fees received by us
in connection with such usage, or a decline in the number of
ATMs that we operate, would have a negative impact on our
revenues and would limit our future growth.
The
proliferation of payment options other than cash in the United
States, including credit cards, debit cards, and stored-value
cards, could result in a reduced need for cash in the
marketplace and a resulting decline in the usage of our
ATMs.
The U.S. has seen a shift in consumer payment trends since
the late 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).
15
Additionally, certain merchants are now offering free cash back
at the point-of-sale for customers that utilize debit cards for
their purchases, thus providing an additional incentive for
consumers to use such cards. According to the Study of
Consumer Payment Preferences for 2005/2006, as prepared by
Dove Consulting and the American Bankers Association,
paper-based forms of payment declined from approximately 57% of
all in-store payments made in 1999 to 44% in 2005. While most of
the increase in electronic forms of payment during this period
came at the expense of traditional checks, the use of cash to
fund in-store payments declined from 39% in 1999 to 33% in 2001.
Although the use of cash has been relatively stable since that
date (remaining at roughly 33% of all in-store payments through
2005), continued growth in electronic payment methods (most
notably debit cards and stored-value cards) could result in a
reduced need for cash in the marketplace and a resulting decline
in the usage of our ATMs.
We have
incurred substantial losses in the past and may continue to
incur losses in the future. The conversion of our Series B
Convertible Preferred Stock in connection with this offering
will contribute to additional losses.
We have incurred net losses in three of the past five years, and
have incurred a net loss of $19.7 million for the nine
months ended September 30, 2007. As of September 30,
2007, we had an accumulated deficit of $23.0 million. There
can be no guarantee that we will achieve profitability. If we
achieve profitability, given the competitive and evolving nature
of the industry in which we operate, we may not be able to
sustain or increase such profitability on a quarterly or annual
basis. In connection with the conversion of our Series B
Convertible Preferred Stock into common stock concurrent with
the closing of this offering and based on the mid point of the
estimated price range set forth on the cover of the prospectus,
TA Associates will receive additional shares of common
stock with a total value of approximately $33 million.
These incremental shares result in an adjustment to the stock
split ratio that will be applied to all existing stockholders.
As a result of this conversion, we will recognize for accounting
purposes a one-time, non-cash reduction in net income available
to common stockholders in this amount during the reporting
period in which this offering is completed.
Interchange
fees, which comprise a substantial portion of our ATM
transaction revenues, may be lowered at the discretion of the
various EFT networks through which our ATM transactions are
routed, thus reducing our future revenues.
Interchange fees, which represented approximately 26.2% and
27.4% of our total pro forma ATM operating revenues for the year
ended December 31, 2006 and the nine months ended
September 30, 2007, respectively, are set by the various
EFT networks through which our ATM transactions are routed.
Accordingly, if such networks decided to lower the interchange
rates paid to us for ATM transactions routed through their
networks, our future ATM transaction revenues would decline.
We derive a
substantial portion of our revenue from ATMs placed with a small
number of merchants. If one or more of our top merchants were to
cease doing business with us, or to substantially reduce its
dealings with us, our revenues could decline.
For the year ended December 31, 2006 and the nine months
ended September 30, 2007, we derived approximately 46.0%
and 44.5%, respectively, of our total pro forma revenues from
ATMs placed at the locations of our five largest merchants. Of
this amount, 7-Eleven represents the single largest merchant
customer in our portfolio, comprising approximately 35.8% and
33.6% of our total pro forma revenues for the year ended
December 31, 2006 and nine months ended September 30,
2007, respectively. In addition to 7-Eleven, our next four
largest merchant customers are CVS, Walgreens, Target, and
ExxonMobil, and they collectively generated approximately 10.2%
and 12.0% of our total pro forma revenues for the year ended
December 31, 2006 and nine months ended September 30,
2007, respectively. Accordingly, a
16
significant percentage of our future revenues and operating
income will be dependent upon the successful continuation of our
relationship with 7-Eleven and these other four merchants.
The loss of any of our largest merchants, or a decision by any
one of them to reduce the number of our ATMs placed in their
locations, would decrease our revenues. These merchants may
elect not to renew their contracts when they expire. As noted
above, our top five merchants (based on our total revenues) are
7-Eleven, CVS, Walgreens, Target, and ExxonMobil, and the
expiration dates of our contracts with these merchants are
July 20, 2017; September 21, 2011; December 31,
2013; January 31, 2012; and December 31, 2013,
respectively. Even if such contracts are renewed, the renewal
terms may be less favorable to us than the current contracts. If
any of our five largest merchants fails to renew its contract
upon expiration, or if the renewal terms with any of them are
less favorable to us than under our current contracts, it could
result in a decline in our revenues and gross profits.
We rely on EFT
network providers, transaction processors, 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 and maintenance providers and have more
than one such provider in each of these key areas. These
providers enable us to provide card authorization, data capture,
settlement, and ATM 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. Further, if such disruption of service is significant,
the affected merchants may seek to terminate their agreements
with us.
If we, our
transaction processors, our EFT networks or other service
providers experience system failures, the ATM products and
services we provide could be delayed or interrupted, which would
harm our business.
Our ability to provide reliable service largely depends on the
efficient and uninterrupted operations of our in-house
transaction processing switch, third-party transaction
processors, telecommunications network systems, and other
service providers. Accordingly, any significant interruptions
could severely harm our business and reputation and result in a
loss of revenue. Additionally, if any such interruption is
caused by us, especially in those situations in which we serve
as the primary transaction processor, such interruption could
result in the loss of the affected merchants or damage our
relationships with such merchants. Our systems and operations
and those of our transaction processors and our EFT network and
other service providers could be exposed to damage or
interruption from fire, natural disaster, unlawful acts,
terrorist attacks, power loss, telecommunications failure,
unauthorized entry, and computer viruses. We cannot be certain
that any measures we and our service providers have taken to
prevent system failures will be successful or that we will not
experience service interruptions.
If not done
properly, the transitioning of our ATMs from third-party
processors to our own in-house transaction processing switch
could lead to service interruptions and/or the inaccurate
settlement of funds between the various parties to our ATM
transactions, which would harm our business and our
relationships with our merchants.
We are currently transitioning the processing of transactions
conducted on our ATMs from third-party processors to our own
in-house transaction processing switch, and we expect to have a
substantial number of our domestic Company-owned and
merchant-owned ATMs
17
converted over to that switch by the end of 2007. We currently
have very limited experience in ATM transaction processing and
have just recently hired additional personnel with experience in
running an ATM transaction processing operation, including
personnel we hired in connection with the
7-Eleven ATM
Transaction. Because this is a relatively new business for us,
there is an increased risk that our processing conversion
efforts will not be successful, thus resulting in service
interruptions for our merchants. Furthermore, if not performed
properly, the processing of transactions conducted on our ATMs
could result in the inaccurate settlement of funds between the
various parties to those transactions and expose us to increased
liability.
Security
breaches could harm our business by compromising customer
information and disrupting our ATM transaction processing
services and damage our relationships with our merchant
customers and expose us to liability.
As part of our ATM transaction processing services, we
electronically process, store, and transmit sensitive cardholder
information utilizing our ATMs. Unauthorized access to our
computer systems could result in the theft or publication of
such information or the deletion or modification of sensitive
records, and could cause interruptions in our operations. While
such security risks are mitigated by the use of encryption
techniques, any inability to prevent security breaches could
damage our relationships with our merchant customers and expose
us to liability.
Computer
viruses could harm our business by disrupting our ATM
transaction processing services, causing non-compliance with
network rules and damaging our relationships with our merchant
customers.
Computer viruses could infiltrate our systems, thus disrupting
our delivery of services and making our applications
unavailable. Although we utilize industry standard anti-virus
software and intrusion detection solutions for all of our key
applications, any inability to prevent computer viruses could
damage our relationships with our merchant customers and cause
us to be in non-compliance with applicable network rules and
regulations.
Operational
failures in our ATM transaction processing facilities could harm
our business and our relationships with our merchant
customers.
An operational failure in our ATM transaction processing
facilities could harm our business and damage our relationships
with our merchant customers. Damage or destruction that
interrupts our ATM processing services could damage our
relationships with our merchant customers and could cause us to
incur substantial additional expense to repair or replace
damaged equipment. We have installed
back-up
systems and procedures to prevent or react to such disruptions.
However, a prolonged interruption of our services or network
that extends for more than several hours (i.e., where our backup
systems are not able to recover) could result in data loss or a
reduction in revenues as our ATMs would be unable to process
transactions. In addition, a significant interruption of service
could have a negative impact on our reputation and could cause
our present and potential merchant customers to choose
alternative ATM service providers.
Errors or
omissions in the settlement of merchant funds could damage our
relationships with our 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.
18
We rely on
third parties to provide us with the cash we require to operate
many of our ATMs. If these third parties were unable or
unwilling to provide us with the necessary cash to operate our
ATMs, we would need to locate alternative sources of cash to
operate our ATMs or we would not be able to operate our
business.
In the U.S., we have historically relied on agreements with Bank
of America, N.A. (Bank of America) and Palm Desert
National Bank (PDNB) to provide us with the cash
that we use in approximately 11,600 of our domestic ATMs where
cash is not provided by the merchant (vault cash).
In July 2007, we entered into a separate vault cash agreement
with Wells Fargo, N. A. (Wells Fargo) to supply us
with the cash that we use in the 5,500 ATMs and
Vcomtm
units acquired in the 7-Eleven ATM Transaction. As of
September 30, 2007, the balance of cash held in our
domestic ATMs was approximately $740.6 million, 50.8% of
which was supplied by Bank of America and 48.5% by Wells Fargo.
Under our agreements with Bank of America, Wells Fargo, and
PDNB, we pay a fee for our usage of this cash based on the total
amount of vault cash that we are using at any given time. At all
times during this process, legal and equitable title to the cash
is held by the cash providers, and we have no access or right to
the cash. Each provider has the right to demand the return of
all or any portion of its cash at any time upon the occurrence
of certain events beyond our control, including certain
bankruptcy events of us or our subsidiaries, or a breach of the
terms of our cash provider agreements. Our current agreements
with Bank of America and Wells Fargo expire in October 2008 and
July 2009, respectively. However, Bank of America can terminate
its agreement with us upon 360 days prior written notice,
and Wells Fargo can terminate its agreement with us upon
180 days prior written notice.
We rely on an agreement with Alliance & Leicester
Commercial Bank (ALCB) to provide us with all of the
cash that we use in approximately 1,740 of our U.K. ATMs where
cash is not provided by the merchant. The balance of cash held
in our U.K. ATMs as of September 30, 2007 was approximately
$140.4 million. Under the agreement with ALCB, we pay a fee
for our usage of this cash based on the total amount of vault
cash that we are using at any time. At all times during this
process, legal and equitable title of the cash is held by ALCB,
and we have no access or right to the cash. Our current
agreement with ALCB, which expires on January 1, 2009,
contains certain provisions, which, if triggered, may allow ALCB
to terminate their agreement with us and demand the return of
its cash upon 180 days prior written notice.
In Mexico, our current ATM cash is provided by Bansi, S.A.
Institución de Banca Multiple (Bansi), a
regional bank in Mexico and a minority interest owner in
Cardtronics Mexico. We currently have an agreement with Bansi to
supply us with cash of up to $10.0 million U.S. that
expires on March 31, 2008. As of September 30, 2007,
the balance of cash held in our ATMs in Mexico was approximately
$6.3 million.
If our cash providers were to demand return of their cash or
terminate their arrangements with us and remove their cash from
our ATMs, or if they were to fail to provide us with cash as and
when we need it for our ATM operations, our ability to operate
these ATMs would be jeopardized, and we would need to locate
alternative sources of cash in order to operate these ATMs.
Changes in
interest rates could increase our operating costs by increasing
interest expense under our credit facilities and our vault cash
rental costs.
Interest on our outstanding indebtedness under our revolving
credit facilities is based on floating interest rates, and our
vault cash rental expense is based on market rates of interest.
As a result, our interest expense and cash management costs are
sensitive to changes in interest rates. Vault cash is the cash
we use in our machines in cases where cash is not provided by
the merchant. We pay rental fees on the average amount of vault
cash outstanding in our ATMs under floating rate formulas based
on the London Interbank Offered Rate
19
(LIBOR) for Bank of America and PDNB in the U.S. and
ALCB in the U.K., and based on the federal funds effective rate
for Wells Fargo in the U.S. Additionally, in Mexico, we pay a
monthly rental fee to our vault cash provider under a formula
based on the Mexican Interbank Rate (TIIE). As of
September 30, 2007, the balances of cash held in our
domestic, U.K., and Mexico ATMs were $740.6 million,
$140.4 million, and $6.3 million, respectively. Recent
increases in interest rates in the U.S., the U.K., and Mexico
have resulted in increases in our interest expense under our
credit facility as well as our vault cash rental expense.
Although we currently hedge a significant portion of our vault
cash interest rate risk related to our domestic operations
through December 31, 2010, including a portion of the vault
cash associated with the 7-Eleven ATM Transaction, we may not be
able to enter into similar arrangements for similar amounts in
the future. Furthermore, we have not currently entered into any
derivative financial instruments to hedge our variable interest
rate exposure in the U.K. or Mexico. Any significant future
increases in interest rates could have a negative impact on our
earnings and cash flow by increasing our operating costs and
expenses. See Managements Discussion and Analysis of
Financial Condition and Results of OperationsDisclosure
about Market Risk; Interest Rate Risk.
We maintain a
significant amount of cash within our Company-owned ATMs, which
is subject to potential loss due to theft or other events,
including natural disasters.
As of September 30, 2007, there was approximately
$887.3 million in vault cash held in our domestic and
international ATMs. Although legal and equitable title to such
cash is held by the cash providers, any loss of such cash from
our ATMs through theft or other means is typically our
responsibility (other than thefts resulting from the use of
fraudulent debit or credit cards, which are typically the
responsibility of the issuing financial institutions). While we
maintain insurance to cover a significant portion of any losses
that may be sustained by us as a result of such events, we are
still required to fund a portion of such losses through the
payment of the related deductible amounts under our insurance
policies. Furthermore, although thefts and losses suffered by
our ATMs have been relatively minor and infrequent in the past,
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.
The ATM
industry is highly competitive and such competition may
increase, which may adversely affect our profit
margins.
The ATM business is and can be expected to remain highly
competitive. While our principal competition comes from national
and regional financial institutions, we also compete with other
independent ATM companies in the United States and the United
Kingdom. Several of our competitors, namely national financial
institutions, are larger, more established, and have greater
financial and other resources than we do. Our competitors could
prevent us from obtaining or maintaining desirable locations for
our ATMs, cause us to reduce the surcharge revenue generated by
transactions at our ATMs, or cause us to pay higher merchant
fees, thereby reducing our profits. In addition to our current
competitors, additional competitors may enter the market. We can
offer no assurance that we will be able to compete effectively
against these current and future competitors. Increased
competition could result in transaction fee reductions, reduced
gross margins and loss of market share.
In the United Kingdom, we face competition from several
companies with operations larger than our own. Many of these
competitors have financial and other resources substantially
greater than our U.K. subsidiary.
20
The election
of our merchant customers to not participate in our
surcharge-free network offerings could impact the networks
effectiveness, which would negatively impact our financial
results.
Financial institutions that are members of our Allpoint and
MasterCard®
surcharge-free networks pay a fee in exchange for allowing their
cardholders to use selected Cardtronics owned
and/or
managed ATMs on a surcharge-free basis. The success of these
networks is dependent upon the participation by our merchant
customers in such networks. In the event a significant number of
our merchants elect not to participate in such networks, the
benefits and effectiveness of the networks would be diminished,
thus potentially causing some of the participating financial
institutions to not renew their agreements with us, and thereby
negatively impacting our financial results.
We may be
unable to integrate our recent and future acquisitions in an
efficient manner and inefficiencies would increase our cost of
operations and reduce our profitability.
Our acquisitions involve certain inherent risks to our business,
including the following:
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the operations, technology, and personnel of any acquired
companies may be difficult to integrate;
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the allocation of management resources to consummate these
transactions may disrupt our day-to-day business; and
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acquired networks may not achieve anticipated revenues, earnings
or cash flow. Such a shortfall could require us to write down
the carrying value of the intangible assets associated with any
acquired company, which would adversely affect our reported
earnings.
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Since April 2001, we have acquired 14 ATM networks and one
surcharge-free ATM network. Prior to our E*TRADE Access
acquisition in June 2004, we had acquired only the assets
of deployed ATM networks, rather than businesses and their
related infrastructure. We currently anticipate that our future
acquisitions will likely reflect a mix of asset acquisitions and
acquisitions of businesses, with each acquisition having its own
set of unique characteristics. To the extent that we elect to
acquire an existing company or the operations, technology, and
personnel of another ATM provider, we may assume some or all of
the liabilities associated with the acquired company and face
new and added challenges integrating such acquisition into our
operations.
The 7-Eleven ATM Transaction involves certain inherent risks to
our business. Most notably, our existing management, information
systems, and resources may be strained due to the size of the
7-Eleven ATM Transaction. Accordingly, we will need to continue
to invest in and improve our financial and managerial controls,
reporting systems, and procedures as we look to integrate the
acquired 7-Eleven ATM operations. We will also need to hire,
train, supervise, and manage new employees. We may be
unsuccessful in those efforts, thus hindering our ability to
effectively manage the expansion of our operations resulting
from this acquisition. Furthermore, the advanced-functionality
services we provide through the
Vcomtm
units may subject us or our service providers to additional
requirements such as permit applications or regulatory filings.
As a result, we may need to discontinue certain
Vcomtm
operations in certain jurisdictions until such requirements have
been fulfilled. Furthermore, if we are unsuccessful in
integrating the 7-Eleven ATM Transaction, or if our integration
efforts take longer than anticipated, we may not achieve the
level of revenues, earnings or cash flows anticipated from such
acquisition. If that were to occur, such shortfalls could
require us to write down the carrying value of the tangible and
intangible assets associated with the acquired operations, which
would adversely impact our reported operating results.
21
Any inability on our part to manage effectively 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.
On a pro forma basis as of December 31, 2006 and on a
historical basis as of September 30, 2007, approximately
5.6% and 9.2% of our ATMs were located in the U.K. and
Mexico, respectively. Those ATMs contributed 12.8% and 16.9% of
our pro forma gross profits (exclusive of depreciation,
accretion, and amortization) for the year ended
December 31, 2006 and the nine months ended
September 30, 2007, respectively, and 13.0% and 17.6% of
our pro forma gross profits (inclusive of depreciation,
accretion, and amortization) for the year ended
December 31, 2006 and the nine months ended
September 30, 2007, respectively. We expect to continue to
expand in the U.K. and Mexico and potentially into other
countries as opportunities arise.
Our international operations are subject to certain inherent
risks, including:
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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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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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potentially 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.
Our proposed
expansion efforts into new international markets involve unique
risks and may not be successful.
We currently plan to expand our operations internationally with
a focus on high growth emerging markets, such as Central and
Eastern Europe, China, India and Brazil. Because the off-premise
ATM industry is relatively undeveloped in these emerging
markets, we may not be successful in these expansion efforts. In
particular, many of these markets do not currently employ or
support an off-premise ATM surcharging model, meaning that we
would have to rely on interchange fees as our primary source of
revenue. While we have had some success in deploying
non-surcharging ATMs in selected markets (most notably in the
United Kingdom), such a model requires significant transaction
volumes to make it economically feasible to purchase and deploy
ATMs. Furthermore, most of the ATMs in these markets are owned
and operated by financial institutions, thus increasing the risk
that cardholders would be unwilling to utilize an off-premise
ATM with an unfamiliar brand. Finally, the regulatory
environments in many of these markets are evolving and
unpredictable, thus increasing the risk that a particular
deployment model chosen at inception may not be economically
viable in the future.
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We operate in
a changing and unpredictable regulatory environment. If we are
subject to new legislation regarding the operation of our ATMs,
we could be required to make substantial expenditures to comply
with that legislation, which may reduce our net income and our
profit margins.
With its initial roots in the banking industry, the U.S. ATM
industry has always been regulated, if not by individual states,
then by the rules and regulations of the federal Electronic
Funds Transfer Act, which establishes the rights, liabilities,
and responsibilities of participants in EFT systems. The vast
majority of states have few, if any, licensing requirements.
However, legislation related to the U.S. ATM industry is
periodically proposed at the state and local level. To date, no
such legislation has been enacted that materially adversely
affects our business.
In the United Kingdom, the ATM industry is largely
self-regulating. Most ATMs are part of the LINK network and must
operate under the network rules set forth by LINK, including
complying with rules regarding required signage and screen
messages. Additionally, legislation is proposed from
time-to-time at the national level, though nothing to date has
been enacted that materially affects our business.
Finally, the ATM industry in Mexico has been historically
operated by financial institutions. 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 an non-bank ATM deployer to provide
ATM services in Mexico, the deployer must be affiliated with
Promoción y Operación S.A. de C.V.
(PROSA-RED), a credit card and debit card
proprietary network that transmits information and settles ATM
transactions between its participants. As only financial
institutions are allowed to be participants of PROSA-RED,
Cardtronics Mexico entered into a joint venture with Bansi, who
is a member of PROSA-RED. As a financial institution, Bansi and
all entities in which it participates, including Cardtronics
Mexico, are regulated by the Ministry of Finance and Public
Credit (Secretaria de Hacienda y Crédito
Público) and supervised by the Banking and Securities
Commission (Comisión Nacional Bancaria y de
Valores). Additionally, Cardtronics Mexico is subject to
the provisions of the Ley del Banco de Mexico (Law of Banco de
Mexico), the Ley de Instituciones de Crédito (Mexican
Banking Law), and the Ley para la Transparencia y Ordenamiento
de los Servicios Financieros (Law for the Transparency and
Organization of Financial Services).
We will continue to monitor all such legislation and attempt, to
the extent possible, to prevent the passage of such laws that we
believe are needlessly burdensome or unnecessary. If regulatory
legislation is passed in any of the jurisdictions in which we
operate, we could be required to make substantial expenditures
which would reduce our net income.
The passing of
legislation banning or limiting surcharge fees would severely
impact our revenue.
Despite the nationwide acceptance of surcharge fees at ATMs, a
few consumer activists (most notably in California) have from
time to time attempted to impose local bans 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.
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In the United Kingdom, the Treasury Select Committee of the
House of Commons published a report regarding surcharges in the
ATM industry in March 2005. This committee was formed to
investigate public concerns regarding the ATM industry,
including (1) adequacy of disclosure to ATM customers
regarding surcharges, (2) whether ATM providers should be
required to provide free services in low-income areas and
(3) whether to limit the level of surcharges. While the
committee made numerous recommendations to Parliament regarding
the ATM industry, including that ATMs should be subject to the
Banking Code (a voluntary code of practice adopted by all
financial institutions in the U.K.), the U.K. government did not
accept the committees recommendations. Despite the
rejection of the committees recommendations, the U.K.
government did sponsor an ATM task force to look at social
exclusion in relation to ATM services. As a result of the task
forces findings, approximately 600 additional free-to-use
ATMs will be installed in low income areas throughout the U.K.
during 2007. While this is less than a two percent increase in
free-to-use ATMs through the U.K., there is no certainty that
other similar proposals will not be made and accepted in the
future. If the legislature or another body with regulatory
authority in the U.K. were to impose limits on the level of
surcharges for ATM transactions, our revenue from operations in
the U.K. would be negatively impacted.
In Mexico, surcharging for off-premise ATMs was legalized in
late 2003, but was not formally implemented until July 2005. As
such, the charging of fees to consumers to utilize off-premise
ATMs is a relatively new experience in Mexico. Accordingly, it
is too soon to predict whether public concerns over surcharging
will surface in Mexico. However, if such concerns were to be
raised, and if the applicable legislative or regulatory bodies
in Mexico decided to impose limits on the level of surcharges
for ATM transactions, our revenue from operations in Mexico
would be negatively impacted.
The passing of
legislation requiring modifications to be made to ATMs could
severely impact our cash flows.
Under a current ruling of the U.S. District Court, it was
determined that the United States currencies (as currently
designed) violate the Rehabilitation Act, as the paper
currencies issued by the U.S. are identical in size and
color, regardless of denomination. Under the ruling, the
U.S. Treasury Department has been ordered to develop ways
in which to differentiate paper currency such that an individual
who is visually-impaired would be able to distinguish between
the different denominations. While it is still uncertain at this
time what the outcome of the appeals process will be, in the
event the current ruling is not overturned, participants in the
ATM industry (including us) could be forced to incur significant
costs to upgrade current machines hardware and software
components. If required, such capital expenditures could limit
our free cash such that we do not have enough cash available for
the execution of our growth strategy, research and development
costs, or other purposes.
The passing of
anti-money laundering legislation could cause us to lose certain
merchant accounts and reduce our revenues.
Recent concerns by the U.S. federal government regarding
the use of ATMs to launder money could lead to the imposition of
additional regulations on our sponsoring financial institutions
and our merchant customers regarding the source of cash loaded
into their ATMs. In particular, such regulations could result in
the incurrence of additional costs by individual merchants who
load their own cash, thereby making their ATMs 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.
24
A substantial
portion of our future revenues and operating profits will be
generated by the new 7-Eleven merchant relationship.
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 ATM placement agreement with 7-Eleven
expires or is terminated, our future financial results would be
significantly impaired.
7-Eleven is now the single largest merchant customer in our
portfolio, representing 35.8% and 33.6% of our total pro forma
revenues for the year ended December 31, 2006 and nine
months ended September 30, 2007, respectively. Accordingly,
a significant percentage of our future revenues and operating
income will be dependent upon the successful continuation of our
relationship with 7-Eleven. If 7-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 ATM placement
agreement with 7-Eleven has an initial term of 10 years, we
may not be successful in renewing such agreement with 7-Eleven
upon the end of that initial term, or such renewal may occur
with terms and conditions that are not as favorable to us as
those contained in the current agreement. Finally, the ATM
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.
In connection
with the 7-Eleven ATM Transaction, we acquired
advanced-functionality
Vcomtm
machines with significant potential for providing new services.
Failure to achieve market acceptance among users could lead to
continued losses from the
Vcomtm
Services, which could adversely affect our operating
results.
In the 7-Eleven ATM Transaction, we acquired approximately 5,500
ATM machines, including 2,000 advanced-functionality
Vcomtm
machines. Advanced-functionality includes check cashing, money
transfer, and bill payment services (collectively, the
Vcomtm
Services), as well as off-premise deposit services using
electronic imaging. Additional growth opportunities that we
believe to be associated with the acquisition of
Vcomtm
machines, including possible services expansion of our existing
ATMs, may be impaired if we cannot achieve market acceptance
among users or if we cannot implement the right mix of services
and locations or adopt effective targeted marketing strategies.
We have estimated that the
Vcomtm
Services generated an operating profit of $11.4 million for
the year ended December 31, 2006 and an operating loss of
$3.6 million for the nine months
ended September 30, 2007. However, excluding the
upfront placement fees, which may not continue in the future,
the
Vcomtm
Services generated operating losses of $6.6 million and
$7.8 million for the year ended December 31, 2006 and
for the nine months ended September 30, 2007, respectively.
For the period from the acquisition (July 20, 2007) through
September 30, 2007, the
Vcomtm
Services generated an operating loss of $2.1 million. By
continuing to provide the
Vcomtm
Services, we currently expect that we may incur up to
$10.0 million operating losses associated with such
services for the first
12-18 months
subsequent to the
7-Eleven ATM
Transaction. We plan to continue to operate the
Vcomtm
units and restructure the
Vcomtm
operations to improve the financial results of the acquired
Vcomtm
operations; however, we may be unsuccessful in this effort. In
the event we are not able to improve the operating results and
we incur cumulative losses of $10.0 million associated with
providing the
Vcomtm
Services, our current intent is to terminate the
Vcomtm
Services and utilize the
Vcomtm
machines solely to provide traditional ATM services. However,
even if we are unsuccessful in improving its operating results,
we may decide not to exit this business immediately but rather
extend the period of time it takes to restructure the acquired
Vcomtm
operations, thus potentially resulting in losses of greater than
$10.0 million. The future losses associated with the
acquired
Vcomtm
operations could be significantly higher than those
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currently estimated, which would negatively impact our future
operating results and financial condition. Even if we decide to
terminate the provision of
Vcomtm
Services, our operating income may not improve because our
estimate of historical losses was based on a review of the
expenses of the financial services business of 7-Eleven Inc.,
which required us to allocate the expenses not directly
associated with the provision of
Vcomtm
Services. In addition, in the event we decide to terminate the
Vcomtm
Services, we may be required to pay up to $1.5 million of
contract termination payments, and may incur additional costs
and expenses, which could negatively impact our future operating
results and financial condition. Finally, to the extent we
pursue future advanced functionality services independent of our
Vcom efforts as indicated in Prospectus
Summary Our Strategy, we can provide no
assurance that such efforts will be profitable.
Material
weaknesses previously identified in our internal control over
financial reporting by our independent registered public
accounting firm could result in a material misstatement to our
financial statements as well as result in our inability to file
periodic reports within the time periods required by federal
securities laws, which could have a material adverse effect on
our business and stock price.
We are required to design, implement, and maintain effective
controls over financial reporting. In connection with the
preparation of our consolidated financial statements as of and
for the years ended December 31, 2006 and 2005, our
independent registered public accounting firm identified certain
control deficiencies, which represent material weaknesses in our
internal control over financial reporting. A material weakness
is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a
reasonable possibility that a material misstatement of a
companys annual or interim financial statements will not
be prevented or detected on a timely basis. Specifically, our
independent registered public accounting firm identified
material weaknesses regarding our ability to account for complex
or unusual transactions, including (1) deferred financing
cost adjustments related to our debt modifications and
refinancings, and (2) modifications to our asset retirement
obligations. These material weaknesses resulted in, or
contributed to, adjustments to our financial statements and, in
certain cases, restatement of prior financial statements. While
we have taken action to remediate the identified weaknesses,
including the hiring of additional personnel with the requisite
accounting skills and expertise, we cannot provide assurance
that the measures we have taken or any future measures will
adequately remediate the material weaknesses identified by our
independent registered public accounting firm. Failure to
implement new or improved controls, or any difficulties
encountered in the implementation of such controls, could result
in a material misstatement in our annual or interim consolidated
financial statements that would not be prevented or detected.
Such material misstatement could require us to restate our
financial statements or otherwise cause investors to lose
confidence in our reported financial information.
We are required to document and test our internal control
procedures in order to satisfy the requirements of
Section 404 of the Sarbanes-Oxley Act of 2002, which will
require annual management assessments and a report by our
independent registered public accounting firm on the
effectiveness of our internal control over financial reporting.
We must complete our Section 404 annual management report
and include the report beginning in our 2007 Annual Report on
Form 10-K, which will be filed in early 2008. Additionally,
our independent registered public accounting firm must complete
its attestation report, which must be included beginning in our
2008 Annual Report on
Form 10-K,
which will be filed in early 2009. As described above, our
independent registered public accounting firm has identified
material weaknesses in our internal control over financial
reporting, and we or it may discover additional material
weaknesses or deficiencies, which we may not be able to
remediate in time to meet our deadline for compliance with
Section 404. Testing and maintaining internal controls may
divert our managements attention from other matters that
are important to our business. We may
26
not be able to conclude on an ongoing basis that we have
effective internal control over financial reporting in
accordance with Section 404 or our independent registered
public accounting firm may not issue a favorable assessment. We
cannot be certain as to the timing of completion of our
evaluation, testing, and remediation actions or their effect on
our operations. If either we are unable to conclude that we have
effective internal control over financial reporting or our
independent registered public accounting firm is unable to
provide us with an unqualified report, investors could lose
confidence in our reported financial information, which could
have a negative effect on the trading price of our stock.
Failure to remediate any identified material weaknesses could
cause us to not meet our reporting obligations. The rules of the
Securities and Exchange Commission (SEC) require
that we file periodic reports containing our financial
statements within a specified time following the completion of
quarterly and annual fiscal periods. Any failure by us to timely
file our periodic reports with the SEC may result in a number of
adverse consequences that could materially and adversely impact
our business, including, without limitation, potential action by
the SEC against us, possible defaults under our debt
arrangements, shareholder lawsuits, delisting of our stock from
The Nasdaq Global Market, and general damage to our reputation.
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.
27
If our
goodwill or other intangible assets become impaired, we may be
required to record a significant charge to
earnings.
We have a large amount of goodwill and other intangible assets
and are required to perform periodic assessments for any
possible impairment for accounting purposes. At
September 30, 2007, we had goodwill and other intangible
assets of $371.2 million, or approximately 66% of our total
assets. We evaluate periodically the recoverability and the
amortization period of our intangible assets under GAAP. Some
factors that we consider to be important in assessing whether or
not impairment exists include the performance of the related
assets relative to the expected historical or projected future
operating results, significant changes in the manner of our use
of the assets or the strategy for our overall business, and
significant negative industry or economic trends. These factors,
assumptions, and changes in them could result in an impairment
of our goodwill and other intangible assets. We may be required
to record a significant charge to earnings in our financial
statements during the period in which any impairment of our
goodwill or amortizable intangible assets is determined,
resulting in an impact on our results of operations, the effect
of which could be material. For example, in the quarter ended
September 30, 2007 we recorded approximately
$5.1 million of impairment charges related to our merchant
contract with Target, which we acquired in 2004. 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 September 30, 2007, we had outstanding indebtedness
of approximately $408.9 million, which represents
approximately 95.9% of our total capitalization of
$426.4 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 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;
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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; and
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place us at a disadvantage compared to our competitors who have
less debt.
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Any of the above listed 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.
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The terms of
our credit agreement and the indentures governing our senior
subordinated notes may restrict our current and future
operations, particularly our ability to respond to changes in
our business or to take certain actions.
Our credit agreement and the indentures governing our senior
subordinated notes include a number of covenants that, among
other items, restrict our ability to:
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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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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. As a result of these ratios and limits, we are limited
in the manner in which we conduct our business and may be unable
to engage in favorable business activities or finance future
operations or capital needs. Accordingly, these restrictions may
limit our ability to successfully operate our business and
prevent us from fulfilling our debt obligations. A failure to
comply with the covenants or financial ratios could result in an
event of default. In the event of a default under our credit
agreement, the lenders could exercise a number of remedies, some
of which could result in an event of default under the
indentures governing the senior subordinated notes. An
acceleration of indebtedness under our credit agreement would
also likely result in an event of default under the terms of any
other financing arrangement we have outstanding at the time. If
any or all of our debt were to be accelerated, there can be no
assurance that our assets would be sufficient to repay any such
indebtedness in full. If we are unable to repay outstanding
borrowings under our bank credit facility when due the lenders
will have the right to proceed against the collateral securing
such indebtedness. See Managements Discussion and
Analysis of Financial Condition and Results of
OperationsLiquidity and Capital ResourcesFinancing
Facilities for an additional discussion of our financing
instruments.
Risks Related to
the Offering
There is no
existing market for our common stock, and an active trading
market may not develop.
There has not been a public market for our common stock. We
cannot predict the extent to which investor interest in us will
lead to the development of an active trading market on The
Nasdaq Global Market or otherwise or how liquid that market
might become. If an active trading market does not develop, you
may have difficulty selling any of our common stock that you
buy. The initial public offering price for the shares will be
determined by negotiations between us and the representatives of
the underwriters and may not be indicative of prices that will
prevail in the open market following this offering.
Consequently, you may not be able to sell shares of our common
stock at prices equal to or greater than the price paid by you
in this offering.
29
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 lower our 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. After the completion of this
offering, we will have 38,514,125 outstanding shares of
common stock. This number includes 12,000,000 shares that
we are selling in this offering, which may be resold immediately
in the public market. The remaining 26,514,125 shares, or
68.8% of our total outstanding shares, are restricted from
immediate resale under the federal securities laws and a
substantial portion of them are subject to the
lock-up
agreements between our current stockholders and the underwriters
described in Underwriting, but may be sold into the
market in the near future.
All of our existing stockholders are parties to an investors
agreement with us. Under that agreement, certain of these
stockholders will have the right, after the expiration of the
lock-up
period of 180 days from the effective date of this
registration statement, to require us to effect the registration
of their shares. In addition, if we propose to register, or are
required to register following the exercise of registration
rights, any of our shares of common stock under the Securities
Act, all the stockholders who are parties to the investors
agreement will be entitled to include their shares of common
stock in that registration.
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. Sales of substantial amounts of our common stock
(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.
You will
suffer immediate and substantial dilution.
The initial public offering price per share is substantially
higher than the pro forma net tangible book value per share
immediately after the offering. As a result, you will pay a
price per share that substantially exceeds the book value of our
assets after subtracting our liabilities. At the initial public
offering price of $10.50, the midpoint of the estimated price
range set forth on the cover page of this prospectus, you will
incur immediate and substantial dilution in the amount of
$17.54 per share. We also have outstanding stock options to
purchase shares of our common stock at a weighted average
exercise price of $6.83 per share. To the extent these
options are exercised, you will experience further dilution.
Investors who purchase common stock in this offering will have
purchased 31.2% of the shares outstanding immediately after the
offering, but will have paid 59.6% of the total consideration
for our shares. See Dilution for more information.
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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. After giving effect to this offering, assuming no
exercise by the underwriters of their over-allotment option and
assuming an initial public offering price at the midpoint of the
range set forth on the cover of this prospectus, affiliates of
The CapStreet Group will beneficially own approximately
9,299,665 shares, or 22.5%, of our common stock, and
affiliates of TA Associates will beneficially own approximately
11,798,000 shares, or 28.6%, of our common stock. The
percentage and number of shares owned by each of these
stockholders after giving effect to this offering will vary
based upon the initial public offering price. 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 deferring a change of control, which
could depress the market price of our common stock. See
Certain Relationships and Related Party Transactions
and Principal 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 Lummis is associated with The
CapStreet Group and Mike Wilson is associated with TA
Associates. This may create conflicts of interest because Fred
Lummis has responsibilities to The CapStreet Group and its
owners and Mike Wilson has responsibilities to TA Associates and
its owners. Their duties to The CapStreet 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.
See Certain Relationships and Related Party
Transactions and Principal Stockholders.
Affiliates of
certain of our underwriters are lenders under our revolving
credit facility. Because proceeds of this offering will be used
to repay borrowings under that facility, those underwriters have
interests in this offering beyond customary underwriting
discounts and commissions.
Affiliates of Banc of America Securities LLC and
J.P. Morgan Securities Inc. are lenders under our revolving
credit facility and will receive a portion of the proceeds of
this offering, which will be used to repay in full the amount
outstanding under the revolving credit facility. See Use
of Proceeds and Underwriting. These
underwriters, through their affiliates, may be deemed to receive
financial benefits as a result of the consummation of this
offering beyond the benefits customarily received by
underwriters in similar offerings.
31
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 and our 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 and our amended and
restated bylaws, which will be in effect at the time this
offering is consummated, 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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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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In this prospectus, we rely on and refer to information and
statistics regarding economic trends and conditions and other
data pertaining to the ATM industry. We have obtained this data
from our own research, surveys and studies conducted by third
parties such as Dove Consulting Group, Inc., industry or other
publications, such as ATM&Debit News, the U.K.
Payment Statistics publication from APACS, and other
publicly available sources. We believe that our sources of
information and estimates are reliable and accurate, but we have
not independently verified them. Our statements about the ATM
industry in general, the number and type of ATMs in various
markets, and the size and operations of our competitors in this
prospectus are based on our managements belief, this
statistical data, internal studies, and our knowledge of
industry trends.
32
We own or have rights to various trademarks, copyrights and
trade names used in our business, including the following:
CARDTRONICS (registered with the
U.S. Patent & Trademark Officeregistration
no. 1.970.030); bankmachine (registered under
the Trade Marks Act of 1994 of Great Britain and Northern
Irelandtrademark registration no. 2350262);
ALLPOINT (registered with the
U.S. Patent & Trademark Officeregistration
no. 2.940.550); and VCOM (registered with the
U.S. Patent & Trademark Officeregistration
no. 2.598.789). This prospectus also includes trademarks,
service marks, and trade names of other companies.
FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking statements that involve
risks and uncertainties. We may, in some cases, use words such
as project, believe,
anticipate, plan, expect,
estimate, intend, should,
would, could, will, or
may, or other words that convey uncertainty of
future events or outcomes to identify these forward-looking
statements. Forward-looking statements in this prospectus may
include statements about:
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our financial outlook and the financial outlook of the ATM
industry;
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our ability to compete successfully with our competitors;
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our use of our proceeds from this offering;
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our cash needs;
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implementation of our corporate strategy;
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our financial performance;
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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 ability to pursue and successfully integrate acquisitions;
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our ability to implement new services on the recently-acquired
advanced-functionality
Vcomtm
units;
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our ability to strengthen existing customer relationships and
reach new customers;
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our ability to expand internationally; and
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our ability to meet the service levels required by our service
level agreements with our customers.
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There are a number of important factors that could cause actual
results to differ materially from the results anticipated by
these forward-looking statements. These important factors
include those that we discuss in this prospectus under the
caption Risk Factors. You should read these factors
and the other cautionary statements made in this prospectus as
being applicable to all related forward-looking statements
wherever they appear in this prospectus. If one or more of these
factors materialize, or if any underlying assumptions prove
incorrect, our actual results, performance or achievements may
vary materially from any future results, performance or
achievements expressed or implied by these forward-looking
statements. We undertake no obligation to publicly update any
forward-looking statements, except as required by law, whether
as a result of new information, future events or otherwise.
33
We are offering 12,000,000 shares of our common stock.
Certain stockholders have also granted the underwriters an
option to purchase up to an aggregate of
1,800,000 additional shares of our common stock to cover
over-allotments. We will not receive any of the proceeds from
the sale of shares by these certain stockholders if the
over-allotment option is exercised.
We estimate that our net proceeds from the sale of the shares of
common stock by us will be approximately $115.7 million,
assuming the midpoint of the estimated price range set forth on
the cover page of this prospectus and after deducting the
estimated underwriting discounts and commissions and estimated
offering expenses payable by us. Assuming no change in the
number of shares offered by us as set forth on the cover page of
this prospectus, a $0.50 increase (decrease) in the assumed
initial public offering price of $10.50 per share would
increase (decrease) the net proceeds to us from this offering by
$5.6 million, after deducting the estimated underwriting
discounts and commissions.
We intend to use approximately $105.6 million of our net
proceeds from this offering to repay amounts outstanding under
our existing revolving credit facility, which may be drawn down
again in the future. That facility, which consists of a
$175.0 million revolving line of credit, matures in May
2012 and bears interest at a variable rate based upon LIBOR or
prime rate, at our option. As of September 30, 2007, we had
approximately $105.6 million in borrowings under the
facility, and we had $61.9 million available for additional
borrowings. The weighted average interest rate on these
borrowings was approximately 7.9%. Of the outstanding borrowings
under the facility, approximately $45.0 million was used to help
fund the acquisition of the financial services business of
7-Eleven on July 20, 2007 and the balance was primarily
drawn to fund working capital and capital expenditure needs. See
Managements Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and Capital
ResourcesFinancing FacilitiesRevolving Credit
Facility for additional information regarding our credit
facility. We intend to utilize the remaining net proceeds for
working capital and general corporate purposes.
34
We do not expect to pay dividends on our common stock for the
foreseeable future. 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. 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. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Financing Facilities for
additional information on the restrictions and covenants in our
credit facility and indentures.
35
The following table sets forth our cash and cash equivalents and
our capitalization as of September 30, 2007:
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on an actual basis; and
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on an as adjusted basis giving effect to (1) our sale of
12,000,000 shares of our common stock in this offering
(assuming the midpoint of the estimated price range set forth on
the cover page of this prospectus), (2) the application of
the estimated net proceeds from the offering as discussed under
Use of Proceeds, (3) the conversion of our
Series B Convertible Preferred Stock into shares of our
common stock in connection with the offering, and (4) a stock
split of our common stock that will occur immediately prior to
the closing of the offering.
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You should read this table together with the Use of
Proceeds, Unaudited Pro Forma Condensed Consolidated
Financial Statements, Managements Discussion
and Analysis of Financial Condition and Results of
Operations, Description of Capital Stock, and
our consolidated financial statements included elsewhere in this
prospectus.
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As of September 30, 2007
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Actual
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As Adjusted
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(Unaudited)
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(Unaudited)
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(in thousands, except share and per share data)
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Cash and cash equivalents
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$
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6,118
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$
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16,198
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Debt (including current maturities):
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Revolving credit
facility (1)(2)
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$
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105,600
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$
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Long-term notes payable and capital lease obligations
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7,351
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7,351
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$100.0 million
91/4% senior
subordinated notes due 2013Series B issued in 2007,
net of $2.9 million discount
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97,073
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97,073
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$200.0 million
91/4% senior
subordinated notes due 2013 issued in 2005, net of
$1.1 million discount
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198,886
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198,886
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Total debt
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408,910
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303,310
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Series B redeemable convertible preferred
stock (3)
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76,794
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Stockholders equity (deficit):
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Common stock, par value $0.0001 per share, 5,000,000 shares
authorized actual and 125,000,000 shares authorized as
adjusted; 2,394,509 shares issued actual and
43,663,047 shares issued as adjusted; and
1,764,735 shares outstanding actual and
38,514,125 shares outstanding as
adjusted (3)(4)
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4
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Subscriptions receivable (at face value)
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(324
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)
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(324
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)
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Additional paid-in
capital(4)
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3,625
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196,095
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Accumulated other comprehensive income, net
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8,577
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8,577
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Accumulated deficit
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(22,986
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)
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(22,986
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)
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Treasury stock, at cost, 629,774 shares actual and
5,148,922 shares as
adjusted (4)
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(48,221
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)
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(48,221
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)
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Total stockholders equity (deficit)
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(59,329
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)
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133,145
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Total capitalization
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$
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426,375
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$
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436,455
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(1)
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Actual amount outstanding as of
December 10, 2007 totaled approximately $115.6 million.
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(2)
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As adjusted amount excludes
approximately $7.5 million in outstanding letters of credit
that were issued in connection with the 7-Eleven ATM
Transaction. As of September 30, 2007, we would have been
able to borrow approximately $61.9 million in additional
funds based on the covenants contained in our revolving credit
facility, as amended.
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36
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(3)
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Consists of Series B
Convertible Preferred Stock, par value $0.0001 per share. As of
September 30, 2007, there were 1,500,000 shares of
Preferred Stock authorized, of which 929,789 shares of
Series B Convertible Preferred Stock were issued and
outstanding. The as adjusted amount assumes the conversion of
all Series B Convertible Preferred Stock into shares of
common stock and a stock split in the form of a stock dividend
of our common stock immediately prior to the closing of the
offering. See Certain Relationships and Related Party
Transactions Preferred Stock Private Placement with
TA Associates and Description of Capital Stock.
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(4)
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To the extent we change the number
of shares of common stock we sell in this offering from the
shares we expect to sell or we change the initial public
offering price from the $10.50 per share assumed initial
offering price, or any combination of these events occurs, our
net proceeds from this offering and as adjusted additional
paid-in capital may increase or decrease. Assuming no change in
the number of shares offered by us as set forth on the cover
page of this prospectus, a $0.50 increase (decrease) in the
assumed initial public offering price of $10.50 per share would
increase (decrease) the net proceeds to us from this offering by
$5.6 million, after deducting the estimated underwriting
discounts and commissions and estimated offering expenses
payable by us.
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37
If you invest in our common stock, your interest will be diluted
to the extent of the difference between the public offering
price per share of our common stock and the net tangible book
value per share of our common stock after this offering. We
calculate net tangible book value per share by dividing our net
tangible book value, which equals total assets less goodwill,
net other intangible assets and total liabilities, by the number
of common shares outstanding. The pro forma net tangible book
value of our common stock as of September 30, 2007, after
giving effect to the impact of the conversion of our
Series B Convertible Preferred Stock into common stock and
the 8.1758 to 1 estimated stock split for our common shares,
which will be effected immediately prior to the closing of the
offering, was approximately $(386.7) million, or $(14.58)
per share, based upon 26,514,125 shares outstanding. After
giving effect to the sale of 12,000,000 shares of common
stock by us in this offering at an assumed initial public
offering price of $10.50 per share, the midpoint of the price
range on the cover of this prospectus, and after deducting the
estimated underwriting discounts and commissions and offering
expenses payable by us, our pro forma net tangible book value as
of September 30, 2007 would have been
$(271.0) million, or $(7.04) per share. This represents an
immediate increase in net tangible book value of $7.54 per share
to existing stockholders and an immediate dilution in net
tangible book value of $17.54 per share to investors purchasing
shares in this offering. The following table illustrates this
per share dilution:
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Assumed initial public offering price per share
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$
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10.50
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Net tangible book value per share as of September 30, 2007
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(13.34
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)
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Decrease attributable to conversion of Series B Convertible
Preferred Stock
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(1.24
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)
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Increase attributable to new public investors
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7.54
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|
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Pro forma net tangible book value per share after this offering
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(7.04
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)
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|
|
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Dilution of net tangible book value per share to new investors
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$
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17.54
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A $0.50 increase (decrease) in the initial public offering price
from the assumed initial public offering price of $10.50 per
share would decrease (increase) our pro forma net tangible
book value after giving effect to this offering by approximately
$5.6 million, our pro forma net tangible book value per
share after giving effect to the offering by $0.14 per share and
the dilution in net tangible book value per share to new
investors in this offering by $0.36 per share, after deducting
the estimated underwriting discounts and commissions and
estimated offering expenses payable by us and assuming no other
change to the number of shares offered by us as set forth on the
cover page of this prospectus. An increase (decrease) of
1,000,000 shares from the expected number of shares to be
sold by us in the offering, assuming no change in the initial
public offering price from the price assumed above, would
decrease (increase) our pro forma net tangible book value
after giving effect to this offering by approximately
$9.8 million, decrease (increase) our pro forma net
tangible book value per share after giving effect to this
offering by $0.43 per share, and decrease (increase) the
dilution in net tangible book value per share to new investors
in this offering by $0.43 per share, after deducting the
estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
The following table summarizes, on the same pro forma basis set
forth above as of September 30, 2007, the total number of
shares of common stock owned by existing stockholders and to be
owned by new investors, the total consideration paid, and the
average price per
38
share paid by our existing stockholders and to be paid by new
investors in this offering, calculated before deduction of
estimated underwriting discounts and commissions.
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Shares Purchased
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Total Consideration
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Average Price
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Number
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Percent
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Amount
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Percent
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per Share
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Existing stockholders
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26,514,125
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68.8
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%
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$
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85,368,503
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40.4
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%
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|
$
|
3.22
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New investors
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12,000,000
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31.2
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%
|
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|
126,000,000
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|
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|
59.6
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%
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|
$
|
10.50
|
|
|
|
|
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|
|
|
|
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|
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|
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Total
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|
38,514,125
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|
|
|
100.0
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%
|
|
$
|
211,368,503
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|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
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The tables above do not reflect the issuance of an additional
5,101,911 shares of common stock issuable upon the exercise
of stock options that will be outstanding, but unexercised,
after the offering. Exercise of the options with an exercise
price of less than the initial public offering price will result
in additional dilution of net tangible book value per share to
new investors.
If the underwriters exercise their over-allotment option in
full, the number of shares held by new investors will increase
to 13,800,000 shares, or 35.8% of the total number of
shares of common stock outstanding after this offering.
39
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected historical consolidated financial and
operating data should be read together with Unaudited Pro
Forma Condensed Consolidated Financial Statements,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and the consolidated
financial statements and related notes included elsewhere in
this prospectus. The selected consolidated balance sheet data as
of December 31, 2005 and 2006 and the selected consolidated
statements of operations data for the years ended
December 31, 2004, 2005, and 2006 have been derived from
our audited consolidated financial statements included elsewhere
in this prospectus. The balance sheet data as of
December 31, 2003 and 2004, and the statements of
operations data for the year ended December 31, 2003 have
been derived from our audited financial statements, while the
balance sheet data as of December 31, 2002 and the
statements of operations data for the year ended
December 31, 2002 have been derived from our unaudited
financial statements, none of which are included in this
prospectus. The selected consolidated balance sheet data as of
September 30, 2007, and the selected consolidated
statements of operations data for the nine months ended
September 30, 2006 and 2007 have been derived from our
unaudited interim condensed consolidated financial statements
included elsewhere in this prospectus. The unaudited balance
sheet data as of September 30, 2006 has been derived from
our unaudited interim condensed consolidated financial
statements for such period, which are not included in this
prospectus. The unaudited interim period financial information,
in the opinion of management, includes all adjustments, which
are normal and recurring in nature, necessary for a fair
presentation for the periods shown. Results for the nine months
ended September 30, 2007 are not necessarily indicative of
the results to be expected for the full year. Historical results
are not necessarily indicative of the results to be expected in
the future.
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Nine Months
|
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Ended
|
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|
Years Ended December 31,
|
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|
September 30,
|
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|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
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|
(in thousands, except share and per share amounts, ratios,
and number of ATMs)
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|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
59,183
|
|
|
$
|
101,950
|
|
|
$
|
182,711
|
|
|
$
|
258,979
|
|
|
$
|
280,985
|
|
|
$
|
209,542
|
|
|
$
|
251,854
|
|
Vcomtm
operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
685
|
|
ATM product sales and other revenues
|
|
|
9,603
|
|
|
|
8,493
|
|
|
|
10,204
|
|
|
|
9,986
|
|
|
|
12,620
|
|
|
|
9,218
|
|
|
|
9,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
68,786
|
|
|
|
110,443
|
|
|
|
192,915
|
|
|
|
268,965
|
|
|
|
293,605
|
|
|
|
218,760
|
|
|
|
262,344
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization, shown separately
below) (1)
|
|
|
49,134
|
|
|
|
80,286
|
|
|
|
143,504
|
|
|
|
199,767
|
|
|
|
209,850
|
|
|
|
157,225
|
|
|
|
191,046
|
|
Cost of
Vcomtm
operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,644
|
|
Cost of ATM product sales and other revenues
|
|
|
8,984
|
|
|
|
7,903
|
|
|
|
8,703
|
|
|
|
9,681
|
|
|
|
11,443
|
|
|
|
8,142
|
|
|
|
9,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
58,118
|
|
|
|
88,189
|
|
|
|
152,207
|
|
|
|
209,448
|
|
|
|
221,293
|
|
|
|
165,367
|
|
|
|
202,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
10,668
|
|
|
|
22,254
|
|
|
|
40,708
|
|
|
|
59,517
|
|
|
|
72,312
|
|
|
|
53,393
|
|
|
|
59,458
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
expenses (2)(3)
|
|
|
6,142
|
|
|
|
7,229
|
|
|
|
13,571
|
|
|
|
17,865
|
|
|
|
21,667
|
|
|
|
15,709
|
|
|
|
20,985
|
|
Depreciation and accretion expense
|
|
|
1,650
|
|
|
|
3,632
|
|
|
|
6,785
|
|
|
|
12,951
|
|
|
|
18,595
|
|
|
|
14,072
|
|
|
|
18,541
|
|
Amortization
expense (4)
|
|
|
1,641
|
|
|
|
3,842
|
|
|
|
5,508
|
|
|
|
8,980
|
|
|
|
11,983
|
|
|
|
9,610
|
|
|
|
14,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
9,433
|
|
|
|
14,703
|
|
|
|
25,864
|
|
|
|
39,796
|
|
|
|
52,245
|
|
|
|
39,391
|
|
|
|
53,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,235
|
|
|
|
7,551
|
|
|
|
14,844
|
|
|
|
19,721
|
|
|
|
20,067
|
|
|
|
14,002
|
|
|
|
5,870
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Years Ended December 31,
|
|
|
September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(in thousands, except share and per share amounts, ratios,
and number of ATMs)
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense (5)
|
|
|
1,039
|
|
|
|
2,157
|
|
|
|
5,235
|
|
|
|
22,426
|
|
|
|
25,072
|
|
|
|
18,769
|
|
|
|
21,592
|
|
Minority interest in subsidiary
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
15
|
|
|
|
(225
|
)
|
|
|
(128
|
)
|
|
|
(286
|
)
|
Other (6)
|
|
|
58
|
|
|
|
106
|
|
|
|
209
|
|
|
|
968
|
|
|
|
(4,761
|
)
|
|
|
(740
|
)
|
|
|
1,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
1,097
|
|
|
|
2,263
|
|
|
|
5,463
|
|
|
|
23,409
|
|
|
|
20,086
|
|
|
|
17,901
|
|
|
|
22,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
138
|
|
|
|
5,288
|
|
|
|
9,381
|
|
|
|
(3,688
|
)
|
|
|
(19
|
)
|
|
|
(3,899
|
)
|
|
|
(16,473
|
)
|
Income tax provision (benefit)
|
|
|
111
|
|
|
|
1,955
|
|
|
|
3,576
|
|
|
|
(1,270
|
)
|
|
|
512
|
|
|
|
(1,217
|
)
|
|
|
3,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
|
27
|
|
|
|
3,333
|
|
|
|
5,805
|
|
|
|
(2,418
|
)
|
|
|
(531
|
)
|
|
|
(2,682
|
)
|
|
|
(19,685
|
)
|
Cumulative effect of change in accounting principle for asset
retirement obligations, net of related income tax benefit of
$80 (7)
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
27
|
|
|
|
3,199
|
|
|
|
5,805
|
|
|
|
(2,418
|
)
|
|
|
(531
|
)
|
|
|
(2,682
|
)
|
|
|
(19,685
|
)
|
Preferred stock dividends and accretion expense
|
|
|
1,880
|
|
|
|
2,089
|
|
|
|
2,312
|
|
|
|
1,395
|
|
|
|
265
|
|
|
|
199
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(1,853
|
)
|
|
$
|
1,110
|
|
|
$
|
3,493
|
|
|
$
|
(3,813
|
)
|
|
$
|
(796
|
)
|
|
$
|
(2,881
|
)
|
|
$
|
(19,885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.92
|
)
|
|
$
|
0.53
|
|
|
$
|
1.56
|
|
|
$
|
(2.16
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(1.64
|
)
|
|
$
|
(11.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.92
|
)
|
|
$
|
0.51
|
|
|
$
|
1.47
|
|
|
$
|
(2.16
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(1.64
|
)
|
|
$
|
(11.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,019,346
|
|
|
|
2,078,555
|
|
|
|
2,238,801
|
|
|
|
1,766,419
|
|
|
|
1,749,328
|
|
|
|
1,752,442
|
|
|
|
1,762,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
2,019,346
|
|
|
|
2,171,824
|
|
|
|
2,372,204
|
|
|
|
1,766,419
|
|
|
|
1,749,328
|
|
|
|
1,752,442
|
|
|
|
1,762,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma share and per share
data(8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.11
|
)
|
|
$
|
0.07
|
|
|
$
|
0.19
|
|
|
$
|
(0.26
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(1.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.11
|
)
|
|
$
|
0.06
|
|
|
$
|
0.18
|
|
|
$
|
(0.26
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(1.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,509,819
|
|
|
|
16,993,902
|
|
|
|
18,304,045
|
|
|
|
14,441,932
|
|
|
|
14,302,199
|
|
|
|
14,327,659
|
|
|
|
14,407,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
16,509,819
|
|
|
|
17,756,453
|
|
|
|
19,394,724
|
|
|
|
14,441,932
|
|
|
|
14,302,199
|
|
|
|
14,327,659
|
|
|
|
14,407,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Years Ended December 31,
|
|
|
September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands, except ratios and numbers of ATMs)
|
|
|
Other Financial Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed
charges (9)
|
|
|
|
|
|
|
1.3
|
x
|
|
|
1.5
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
$
|
4,491
|
|
|
$
|
21,629
|
|
|
$
|
20,466
|
|
|
$
|
33,227
|
|
|
$
|
25,446
|
|
|
$
|
16,867
|
|
|
$
|
35,189
|
|
Cash flows from investing activities
|
|
|
(15,023
|
)
|
|
|
(29,663
|
)
|
|
|
(118,926
|
)
|
|
|
(139,960
|
)
|
|
|
(35,973
|
)
|
|
|
(25,933
|
)
|
|
|
(179,469
|
)
|
Cash flows from financing activities
|
|
|
10,741
|
|
|
|
10,404
|
|
|
|
94,318
|
|
|
|
107,214
|
|
|
|
11,192
|
|
|
|
7,773
|
|
|
|
147,693
|
|
Operating Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of ATMs (at period end)
|
|
|
8,298
|
|
|
|
12,021
|
|
|
|
24,581
|
|
|
|
26,208
|
|
|
|
25,259
|
|
|
|
25,709
|
|
|
|
31,586
|
|
Total transactions
|
|
|
36,212
|
|
|
|
64,605
|
|
|
|
111,577
|
|
|
|
158,851
|
|
|
|
172,808
|
|
|
|
128,539
|
|
|
|
166,183
|
|
Total withdrawal transactions
|
|
|
28,955
|
|
|
|
49,859
|
|
|
|
86,821
|
|
|
|
118,960
|
|
|
|
125,078
|
|
|
|
93,756
|
|
|
|
113,934
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,184
|
|
|
$
|
5,554
|
|
|
$
|
1,412
|
|
|
$
|
1,699
|
|
|
$
|
2,718
|
|
|
$
|
475
|
|
|
$
|
6,118
|
|
Total assets
|
|
|
34,843
|
|
|
|
65,295
|
|
|
|
197,667
|
|
|
|
343,751
|
|
|
|
367,756
|
|
|
|
354,914
|
|
|
|
562,201
|
|
Total long-term debt, including current portion
|
|
|
18,475
|
|
|
|
31,371
|
|
|
|
128,541
|
|
|
|
247,624
|
|
|
|
252,895
|
|
|
|
252,995
|
|
|
|
408,910
|
|
Preferred stock
(10)
|
|
|
19,233
|
|
|
|
21,322
|
|
|
|
23,634
|
|
|
|
76,329
|
|
|
|
76,594
|
|
|
|
76,528
|
|
|
|
76,794
|
|
Total stockholders deficit
|
|
|
(9,024
|
)
|
|
|
(6,329
|
)
|
|
|
(340
|
)
|
|
|
(49,084
|
)
|
|
|
(37,168
|
)
|
|
|
(44,887
|
)
|
|
|
(59,329
|
)
|
|
|
|
(1)
|
|
Excludes depreciation, accretion,
and amortization expense of $3.1 million,
$6.8 million, $11.4 million, $20.6 million, and
$29.2 million for the years ended December 31, 2002,
2003, 2004, 2005, and 2006, respectively, and $22.6 million
and $31.3 million for the nine month periods ended
September 30, 2006 and 2007, respectively.
|
|
(2)
|
|
Includes non-cash stock-based
compensation totaling $1.6 million, $1.0 million,
$2.2 million, and $0.8 million in 2003, 2004, 2005,
and 2006, respectively, as well as $0.6 million for the
nine months ended September 30, 2006 and $0.7 million
for the nine months ended September 30, 2007, related to
options granted to certain employees and a restricted stock
grant made to our Chief Executive Officer in 2003. Additionally,
the 2004 results include a bonus of $1.8 million paid to
our Chief Executive Officer related to the tax liability
associated with such grant. No stock-based compensation was
recorded in 2002. See Note 3 to our consolidated financial
statements.
|
|
(3)
|
|
Includes the write-off in 2004 of
approximately $1.8 million in costs associated with our
decision to not pursue a financing transaction to completion.
|
|
(4)
|
|
Includes pre-tax impairment charges
of $1.2 million and $2.8 million in 2005 and 2006,
respectively, as well as $2.8 million and $5.3 million
for the nine months ended September 30, 2006 and 2007,
respectively.
|
|
(5)
|
|
Includes the write-off of
$5.0 million and $0.5 million of deferred financing
costs in 2005 and 2006, respectively, as a result of
(i) amendments to our existing 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.
|
|
(6)
|
|
The Other line item in
2002, 2003, 2004, and 2005 primarily consists of losses on the
sale or disposal of assets. Other in 2006 reflects
the recognition of approximately $4.8 million in other
income primarily related to settlement proceeds received from
Winn-Dixie Stores, Inc. (Winn-Dixie), one of our
merchant customers, as 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, which were partially offset by
$1.6 million of losses on the sale or disposal of fixed
assets. Other for the nine months ended
September 30, 2007 includes $1.5 million of losses on
the disposal of fixed assets during the period, which were
partially offset by $0.6 million of gains related to the
sale of the Winn-Dixie equity securities, which we received from
Winn-Dixie in 2006 as a part of its bankruptcy settlement.
|
|
(7)
|
|
Reflects the effect of our adoption
of Statement of Financial Accounting Standards
(SFAS) No. 143, Accounting for Asset
Retirement Obligations. See Note 1(m) to our
consolidated financial statements.
|
|
|
|
(8)
|
|
Gives effect to the anticipated
stock split of our common stock in connection with the offering.
The stock split reflected in the above pro forma net income
(loss) per common share amounts reflects (i) the conversion
mechanics applicable to the Series B Convertible Preferred
Stock held by TA Associates, as described in Certain
Relationships and Related Party Transactions,
(ii) the conversion of the remaining Series B
Convertible Preferred Stock into an equal number of common
shares, and (iii) a resulting 8.1758 to 1 stock split for
all common shares, which will be effected immediately prior to
the closing of the offering. Such amounts assume the offering
occurs at the mid point of the price range reflected on the
cover of this prospectus.
|
|
|
|
(9)
|
|
For purposes of determining the
ratio of earnings to fixed charges, earnings are defined as our
income from operations before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness,
amortization of debt issuance costs and the interest portion of
lease payments. Earnings were insufficient to cover fixed
charges by approximately $2.7 million for the year ended
December 31, 2002, $5.4 million for the year ended
December 31, 2005, and $0.2 million for the year ended
December 31, 2006. Earnings were insufficient to cover
fixed charges by approximately $4.0 million and
$16.8 million for the nine months ended September 30,
2006 and 2007, respectively.
|
42
|
|
|
(10)
|
|
The amount reflected on our balance
sheet is shown net of issuance costs of $1.4 million as of
December 31, 2006, and $1.2 million as of
September 30, 2007. The aggregate redemption price for the
preferred stock was $78.0 million as of September 30,
2007.
|
Supplemental
Selected Quarterly Financial Information (Unaudited)
Financial information by quarter is summarized below for each of
the three quarters in the nine month period ended
September 30, 2007 and each of the four quarters in the
years ended December 31, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
|
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
Total
|
|
|
|
(in thousands, except per share amounts)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
74,518
|
|
|
$
|
77,239
|
|
|
$
|
110,587
|
|
|
|
N/A
|
|
|
$
|
262,344
|
|
Gross profit (exclusive of depreciation, accretion, and
amortization)(1)
|
|
|
16,985
|
|
|
|
17,607
|
|
|
|
24,866
|
|
|
|
N/A
|
|
|
|
59,458
|
|
Net
loss(2)
|
|
|
(3,387
|
)
|
|
|
(5,615
|
)
|
|
|
(10,683
|
)
|
|
|
N/A
|
|
|
|
(19,685
|
)
|
Net loss available to common
stockholders(2)
|
|
|
(3,454
|
)
|
|
|
(5,681
|
)
|
|
|
(10,750
|
)
|
|
|
N/A
|
|
|
|
(19,885
|
)
|
Net loss per common
share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.97
|
)
|
|
$
|
(3.22
|
)
|
|
$
|
(6.09
|
)
|
|
|
N/A
|
|
|
$
|
(11.28
|
)
|
Diluted
|
|
$
|
(1.97
|
)
|
|
$
|
(3.22
|
)
|
|
$
|
(6.09
|
)
|
|
|
N/A
|
|
|
$
|
(11.28
|
)
|
Pro forma net loss per common
share(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.24
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.75
|
)
|
|
|
N/A
|
|
|
$
|
(1.38
|
)
|
Diluted
|
|
$
|
(0.24
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.75
|
)
|
|
|
N/A
|
|
|
$
|
(1.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
69,141
|
|
|
$
|
73,254
|
|
|
$
|
76,365
|
|
|
$
|
74,845
|
|
|
$
|
293,605
|
|
Gross profit (exclusive of depreciation, accretion, and
amortization)(4)
|
|
|
16,043
|
|
|
|
18,370
|
|
|
|
18,980
|
|
|
|
18,919
|
|
|
|
72,312
|
|
Net income
(loss)(5)
|
|
|
(3,124
|
)
|
|
|
769
|
|
|
|
(327
|
)
|
|
|
2,151
|
|
|
|
(531
|
)
|
Net income (loss) available to common
stockholders(5)
|
|
|
(3,190
|
)
|
|
|
703
|
|
|
|
(394
|
)
|
|
|
2,085
|
|
|
|
(796
|
)
|
Net income (loss) per common
share(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.83
|
)
|
|
$
|
0.40
|
|
|
$
|
(0.22
|
)
|
|
$
|
1.20
|
|
|
$
|
(0.46
|
)
|
Diluted
|
|
$
|
(1.83
|
)
|
|
$
|
0.24
|
|
|
$
|
(0.22
|
)
|
|
$
|
0.73
|
|
|
$
|
(0.46
|
)
|
Pro forma net income (loss) per common
share(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.22
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.06
|
)
|
Diluted
|
|
$
|
(0.22
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.09
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
58,264
|
|
|
$
|
68,520
|
|
|
$
|
71,734
|
|
|
$
|
69,777
|
|
|
$
|
268,295
|
|
Gross profit (exclusive of depreciation, accretion, and
amortization)(6)
|
|
|
11,857
|
|
|
|
15,707
|
|
|
|
15,949
|
|
|
|
16,004
|
|
|
|
59,517
|
|
Net income
(loss)(7)
|
|
|
569
|
|
|
|
1,446
|
|
|
|
(2,864
|
)
|
|
|
(1,569
|
)
|
|
|
(2,418
|
)
|
Net income (loss) available to common
stockholders(7)
|
|
|
(627
|
)
|
|
|
1,380
|
|
|
|
(2,881
|
)
|
|
|
(1,685
|
)
|
|
|
(3,813
|
)
|
Net income (loss) per common
share(7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.29
|
)
|
|
$
|
0.81
|
|
|
$
|
(1.69
|
)
|
|
$
|
(0.99
|
)
|
|
$
|
(2.16
|
)
|
Diluted
|
|
$
|
(0.29
|
)
|
|
$
|
0.50
|
|
|
$
|
(1.69
|
)
|
|
$
|
(0.99
|
)
|
|
$
|
(2.16
|
)
|
Pro forma net income (loss) per common
share(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.04
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.21
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.26
|
)
|
Diluted
|
|
$
|
(0.04
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.21
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.26
|
)
|
43
|
|
|
(1)
|
|
Excludes $8.5 million,
$7.1 million, and $15.7 million of depreciation,
accretion, and amortization for the quarters ended
March 31, 2007, June 30, 2007, and September 30,
2007, respectively.
|
|
(2)
|
|
Includes pre-tax impairment charges
of $0.1 million for the quarter ended March 31, 2007
and $5.2 million for the quarter ended September 30,
2007 related to certain contract-based intangible assets.
|
|
|
|
(3)
|
|
Gives effect to the anticipated
stock split of our common stock in connection with the offering.
The stock split reflected in the above pro forma net income
(loss) per common share amounts reflects (i) the conversion
mechanics applicable to the Series B Convertible Preferred
Stock held by TA Associates, as described in Certain
Relationships and Related Party Transactions,
(ii) the conversion of the remaining Series B
Convertible Preferred Stock into an equal number of common
shares, and (iii) a resulting 8.1758 to 1 stock split for
all common shares, which will be effected immediately prior to
the closing of the offering. Such amounts assume the offering
occurs at the mid point of the price range reflected on the
cover of this prospectus.
|
|
|
|
(4)
|
|
Excludes $8.9 million,
$6.6 million, $7.1 million, and $6.6 million of
depreciation, accretion, and amortization for the quarters ended
March 31, 2006, June 30, 2006, September 30,
2006, and December 31, 2006, respectively.
|
|
(5)
|
|
Includes pre-tax impairment charge
of $2.8 million for the quarter ended March 31, 2006
related to certain contract-based intangible assets. Also
includes $4.8 million in other income for the quarter ended
December 31, 2006 primarily related to settlement proceeds
received from Winn-Dixie, one of our merchant customers, as part
of its emergence from bankruptcy.
|
|
(6)
|
|
Excludes $3.6 million,
$4.7 million, $5.0 million, and $7.3 million of
depreciation, accretion, and amortization for the quarters ended
March 31, 2005, June 30, 2005, September 30,
2005, and December 31, 2005, respectively.
|
|
(7)
|
|
Includes write-off of deferred
financing costs of $0.2 million for the quarter ended
June 30, 2005 and $4.8 million for the quarter ended
September 30, 2005.
|
44
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial
statements give effect to the
7-Eleven ATM
Transaction and the related financing transactions.
On July 20, 2007, we purchased substantially all of the
assets of the financial services business of 7-Eleven (the
7-Eleven Financial Services Business) for
approximately $138.0 million in cash. That amount included
a $2.0 million payment for estimated acquired working
capital and approximately $1.0 million in other related
closing costs. Subsequent to September 30, 2007, the
working capital payment was reduced to $1.3 million based
on actual working capital amounts outstanding as of the
acquisition date, thus reducing the Companys overall cost
of the acquisition to $137.3 million. Our receivable
related to the working capital adjustment is currently reflected
in our purchase price allocation as an additional current asset.
The acquisition was funded by the sale of $100.0 million
91/4% senior
subordinated notes due 2013Series B and borrowings
under our revolving credit facility, which we amended prior to
the acquisition. The unaudited pro forma condensed consolidated
statements of operations for the year ended December 31,
2006 and nine months ended September 30, 2007, give effect
to the 7-Eleven ATM Transaction and the related financing
transactions as if they occurred on January 1, 2006. No
unaudited pro forma condensed consolidated balance sheet has
been presented as the effects of the above transactions have
been fully reflected in our September 30, 2007 condensed
consolidated balance sheet included elsewhere in this prospectus.
The 7-Eleven ATM Transaction has been accounted for using the
purchase method of accounting and, accordingly, the tangible and
intangible assets acquired and liabilities assumed in such
transaction were recorded at their estimated fair values as of
the related acquisition date. The purchase price allocation
reflected in the accompanying pro forma condensed consolidated
financial statements is considered to be preliminary. The final
purchase price allocation will be dependent upon, among other
things, obtaining the final valuations for the acquired assets
and assumed liabilities, which we expect to have completed
within one year of closing. As such, the total estimated
purchase price, as outlined in Note 2 to the unaudited pro
forma condensed consolidated financial statements, has been
allocated to the assets acquired and the liabilities assumed
based on preliminary estimates of their fair values. This
includes, among other things, estimations of the value of the
acquired ATMs and
Vcomtm
units, which may ultimately differ significantly from the
amounts shown herein. Any adjustments that result from the final
valuation process for all of the acquired assets and assumed
liabilities will change the purchase price allocation reflected
herein, and thus would change the unaudited pro forma condensed
consolidated financial statements reflected in this prospectus,
and in particular, the depreciation and amortization expense
amounts associated with the acquired assets.
We acquired substantially all of the assets of the 7-Eleven
Financial Services Business, which operates approximately 3,500
ATMs that allow customers to carry out traditional ATM services
and approximately 2,000
Vcomtm
advanced-functionality machines that, in addition to traditional
ATM services, provide
Vcomtm
Services.
Historically, 7-Eleven has received upfront placement fees from
third-party service providers to help fund the development and
implementation efforts surrounding the
Vcomtm
Services, which have been recognized as revenues in the
accompanying historical financial statements of the 7-Eleven
Financial Services Business. Although we may attempt to execute
similar payment arrangements with the same (or new) service
providers in the future, there is no guarantee that we will be
successful in doing so. Accordingly, such upfront placement fees
may not occur in the future, or may occur at lower levels than
those realized historically. Reference is made to Note 1 in
the notes to the unaudited pro forma condensed consolidated
financial statements for additional information regarding the
amount of upfront placement fees
45
that have been recognized in the historical financial statements
of the 7-Eleven Financial Services Business.
We currently expect to incur operating losses associated with
the
Vcomtm
Services portion of the acquired 7-Eleven ATM portfolio within
the first
12-18 months
subsequent to the acquisition date. While we plan to continue to
operate the
Vcomtm
units and restructure the
Vcomtm
Services to improve the underlying financial results of that
portion of the acquired business, we may be unsuccessful in this
effort. In the event we are not able to improve the financial
results of the acquired
Vcomtm
operations, and we incur cumulative losses of $10.0 million
associated with providing the
Vcomtm
Services, including $1.5 million in contract termination
costs, our current intent is to terminate the
Vcomtm
Services and utilize the
Vcomtm
machines solely to provide traditional ATM services. See
Risk FactorsRisks Related to Our BusinessIn
connection with the 7-Eleven ATM Transaction, we acquired
advanced-functionality
Vcomtm
machines with significant potential for providing new services.
Failure to achieve market acceptance among users could lead to
continued losses from the
Vcomtm
Services, which could adversely affect our operating
results.
The unaudited pro forma condensed consolidated statements of
operations presented below are based on the assumptions and
adjustments described in the accompanying notes. These unaudited
pro forma condensed consolidated statements of operations are
presented for illustrative purposes only and are not necessarily
indicative of what our results of operations would have been had
the 7-Eleven ATM Transaction and the related financing
transactions been consummated on the dates indicated, nor are
they necessarily indicative of what our results of operations
will be in future periods. The unaudited pro forma condensed
consolidated statements of operations do not contain any
adjustments to reflect anticipated changes in operating costs or
synergies anticipated as a result of the 7-Eleven ATM
Transaction. Operating results for the nine months ended
September 30, 2007 are not indicative of the results that
may be expected for the year ending December 31, 2007. The
unaudited pro forma condensed consolidated statements of
operations, and accompanying notes thereto, should be read in
conjunction with the historical audited and unaudited financial
statements, and accompanying notes thereto, of Cardtronics and
the 7-Eleven Financial Services Business, all of which are
included elsewhere in this prospectus.
46
CARDTRONICS,
INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7-Eleven
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardtronics
|
|
|
Business
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
(See Note 1)
|
|
|
Adjustments
|
|
|
Notes
|
|
|
Pro Forma
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
280,985
|
|
|
$
|
135,976
|
|
|
$
|
|
|
|
|
|
|
|
$
|
416,961
|
|
Vcomtm
operating revenues
|
|
|
|
|
|
|
27,686
|
|
|
|
|
|
|
|
|
|
|
|
27,686
|
|
ATM product sales and other revenues
|
|
|
12,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
293,605
|
|
|
|
163,662
|
|
|
|
|
|
|
|
|
|
|
|
457,267
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization, shown separately below. See
Note 7.)
|
|
|
209,850
|
|
|
|
107,547
|
|
|
|
(7,964
|
)
|
|
|
2
|
|
|
|
309,433
|
|
Cost of
Vcomtm
operating revenues
|
|
|
|
|
|
|
16,309
|
|
|
|
|
|
|
|
|
|
|
|
16,309
|
|
Cost of ATM product sales and other revenues
|
|
|
11,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
221,293
|
|
|
|
123,856
|
|
|
|
(7,964
|
)
|
|
|
|
|
|
|
337,185
|
|
Gross profit
|
|
|
72,312
|
|
|
|
39,806
|
|
|
|
7,964
|
|
|
|
|
|
|
|
120,082
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
21,667
|
|
|
|
5,913
|
|
|
|
|
|
|
|
|
|
|
|
27,580
|
|
Depreciation and accretion expense
|
|
|
18,595
|
|
|
|
12,649
|
|
|
|
(7,542
|
)
|
|
|
4
|
|
|
|
23,702
|
|
Amortization expense
|
|
|
11,983
|
|
|
|
3,171
|
|
|
|
8,143
|
|
|
|
4
|
|
|
|
23,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
52,245
|
|
|
|
21,733
|
|
|
|
601
|
|
|
|
|
|
|
|
74,579
|
|
Income from operations
|
|
|
20,067
|
|
|
|
18,073
|
|
|
|
7,363
|
|
|
|
|
|
|
|
45,503
|
|
Interest expense, net
|
|
|
25,072
|
|
|
|
520
|
|
|
|
13,741
|
|
|
|
3
|
|
|
|
39,333
|
|
Other income, net
|
|
|
(4,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(19
|
)
|
|
|
17,553
|
|
|
|
(6,378
|
)
|
|
|
|
|
|
|
11,156
|
|
Income tax provision (benefit)
|
|
|
512
|
|
|
|
6,776
|
|
|
|
(2,630
|
)
|
|
|
5
|
|
|
|
4,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(531
|
)
|
|
|
10,777
|
|
|
|
(3,748
|
)
|
|
|
|
|
|
|
6,498
|
|
Preferred stock accretion expense
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(796
|
)
|
|
$
|
10,777
|
|
|
$
|
(3,748
|
)
|
|
|
|
|
|
$
|
6,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,749,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,749,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
1,749,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,872,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma share and per share data (see Note 6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,302,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,302,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
14,302,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,483,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed
consolidated financial statements.
47
CARDTRONICS,
INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7-Eleven
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardtronics
|
|
|
Business
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
(See Note 1)
|
|
|
Adjustments
|
|
|
Notes
|
|
|
Pro Forma
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
251,854
|
|
|
$
|
79,313
|
|
|
$
|
|
|
|
|
|
|
|
$
|
331,167
|
|
Vcomtm
operating revenues
|
|
|
685
|
|
|
|
8,197
|
|
|
|
|
|
|
|
|
|
|
|
8,882
|
|
ATM product sales and other revenues
|
|
|
9,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
262,344
|
|
|
|
87,510
|
|
|
|
|
|
|
|
|
|
|
|
349,854
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization, shown separately below. See
Note 7.)
|
|
|
191,046
|
|
|
|
63,234
|
|
|
|
(4,389
|
)
|
|
|
2
|
|
|
|
249,891
|
|
Cost of
Vcomtm
operating revenues
|
|
|
2,644
|
|
|
|
9,126
|
|
|
|
|
|
|
|
|
|
|
|
11,770
|
|
Cost of ATM product sales and other revenues
|
|
|
9,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
202,886
|
|
|
|
72,360
|
|
|
|
(4,389
|
)
|
|
|
|
|
|
|
270,857
|
|
Gross profit
|
|
|
59,458
|
|
|
|
15,150
|
|
|
|
4,389
|
|
|
|
|
|
|
|
78,997
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
20,985
|
|
|
|
2,437
|
|
|
|
|
|
|
|
|
|
|
|
23,422
|
|
Depreciation and accretion expense
|
|
|
18,541
|
|
|
|
9,739
|
|
|
|
(6,923
|
)
|
|
|
4
|
|
|
|
21,357
|
|
Amortization expense
|
|
|
14,062
|
|
|
|
346
|
|
|
|
4,495
|
|
|
|
4
|
|
|
|
18,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
53,588
|
|
|
|
12,522
|
|
|
|
(2,428
|
)
|
|
|
|
|
|
|
63,682
|
|
Income from operations
|
|
|
5,870
|
|
|
|
2,628
|
|
|
|
6,817
|
|
|
|
|
|
|
|
15,315
|
|
Interest expense, net
|
|
|
21,592
|
|
|
|
100
|
|
|
|
7,480
|
|
|
|
3
|
|
|
|
29,172
|
|
Other expense, net
|
|
|
751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(16,473
|
)
|
|
|
2,528
|
|
|
|
(663
|
)
|
|
|
|
|
|
|
(14,608
|
)
|
Income tax provision (benefit)
|
|
|
3,212
|
|
|
|
976
|
|
|
|
(976
|
)
|
|
|
5
|
|
|
|
3,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(19,685
|
)
|
|
|
1,552
|
|
|
|
313
|
|
|
|
|
|
|
|
(17,820
|
)
|
Preferred stock accretion expense
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(19,885
|
)
|
|
$
|
1,552
|
|
|
$
|
313
|
|
|
|
|
|
|
$
|
(18,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(11.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(10.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(11.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(10.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,762,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,762,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
1,762,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,762,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma share and per share date (see Note 6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,407,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,407,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
14,407,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,407,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed
consolidated financial statements.
48
CARDTRONICS,
INC.
NOTES TO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(1) The unaudited pro forma condensed consolidated
financial statements combine the historical results of
Cardtronics and the 7-Eleven Financial Services Business, and
assume, for purposes of the pro forma condensed consolidated
statements of operations, that the 7-Eleven ATM Transaction and
the related financing transactions all occurred on
January 1, 2006.
As discussed elsewhere in this prospectus, on July 20,
2007, we acquired substantially all of the assets associated
with the 7-Eleven Financial Services Business, including
approximately 3,500 ATMs that allow customers to carry out
traditional ATM services and approximately 2,000
advanced-functionality
Vcomtm
machines that offer traditional ATM services, as well as some or
all of the
Vcomtm
Services.
Historically, 7-Eleven has received upfront placement fees from
third-party service providers to help fund the development and
implementation efforts surrounding the
Vcomtm
Services, which have been recognized as revenues in the
accompanying historical financial statements of the 7-Eleven
Financial Services Business. However, it is uncertain as to
whether such payments will occur in the future, or, if they do,
whether such payments will occur at levels consistent with those
seen in the past. During the year ended December 31, 2006
and the nine months ended September 30, 2007, the 7-Eleven
Financial Services Business recognized approximately
$18.7 million and $4.8 million, respectively, in
revenues associated with such upfront placement fees,
approximately $18.0 million and $4.2 million of which
are related to arrangements that ended prior to our acquisition
of the
7-Eleven
Financial Services Business, and thus will not continue in the
future. While we believe we will continue to earn some placement
fee revenues related to the acquired 7-Eleven Financial Services
Business, we expect those amounts to be substantially less than
those earned historically. The exclusion of such fees (which
were directly attributable to providing the
Vcomtm
Services) would have resulted in lower operating results for the
7-Eleven Financial Services Business.
Excluding the majority of the upfront placement fees, the
Vcomtm
Services have historically generated operating losses,
including, based upon our analysis, $6.6 million and
$7.8 million for the year ended December 31, 2006 and
the nine months ended September 30, 2007, respectively. For
the period from the acquisition (July 20, 2007) through
September 30, 2007, the
Vcomtm
Services generated an operating loss of $2.1 million.
Despite these losses, we plan to continue to operate the
Vcomtm
units and restructure the
Vcomtm
Services to improve the underlying financial results of that
portion of the acquired business. By continuing to provide the
Vcomtm
Services for the
12-18 months
following the acquisition, we currently expect that we may incur
up to $10.0 million in operating losses, including
$1.5 million in contract termination costs. In the event we
are unsuccessful in our efforts and our cumulative losses
(including termination costs) reach $10.0 million, our
current intent is to terminate the
Vcomtm
Services and utilize the existing
Vcomtm
machines to provide traditional ATM services. If we terminate
the
Vcomtm
Services, we believe that the financial results of the acquired
7-Eleven Financial Services Business could improve considerably.
(2) The reported amounts reflect the financing of and the
preliminary allocation of the purchase price for the 7-Eleven
ATM Transaction. Such acquisition was financed primarily through
the issuance and sale of $100.0 million
91/4% senior
subordinated notes due
2013Series B
(the Series B Notes), and additional borrowings
under our amended
49
CARDTRONICS,
INC.
NOTES TO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
revolving credit facility. Our estimate of the total purchase
price is summarized as follows (in thousands):
|
|
|
|
|
Total cash consideration
|
|
$
|
135,000
|
|
Working capital adjustment and other related closing costs
|
|
|
2,980
|
|
|
|
|
|
|
Total estimated purchase price of acquisition
|
|
$
|
137,980
|
|
|
|
|
|
|
The total purchase price has been allocated on a preliminary
basis as follows (in thousands):
|
|
|
|
|
Current assets
|
|
$
|
13,549
|
|
Property and equipment
|
|
|
22,428
|
|
Intangible assets:
|
|
|
|
|
Customer contracts and relationships
|
|
|
78,000
|
|
Goodwill
|
|
|
62,367
|
|
Current liabilities
|
|
|
(19,167
|
)
|
Other non-current liabilities
|
|
|
(19,197
|
)
|
|
|
|
|
|
Total purchase price of acquisition
|
|
$
|
137,980
|
|
|
|
|
|
|
The preliminary allocation of the purchase price is pending
completion of certain items, including the finalization of our
valuation efforts for the tangible and intangible assets
acquired. As such, there may be material changes to the initial
allocation reflected above as those remaining items are
finalized. Furthermore, the current allocations reflected above
include $7.8 million and $11.7 million of additional
other current liabilities and other long-term liabilities,
respectively, related to certain unfavorable equipment leases
and an operating contract assumed as part of the 7-Eleven ATM
Transaction. The pro forma statements of operations include
expense reductions of $8.0 million and $6.0 million
for the pro forma year ended December 31, 2006 and pro
forma nine months ended September 30, 2007 associated with
the amortization of these liabilities to reduce the
corresponding ATM operating expense amounts to fair value.
Although these adjustments will serve to reduce the
Companys future expenses recorded for the cost of ATM
operating revenues, the Company will still be required to pay
the higher rates stipulated in the assumed leases and contract
for the remaining terms of such agreements, the substantial
majority of which expire in 2009. Such adjustments are
considered to be preliminary and thus, may change materially
once the valuation of the acquired assets and assumed
liabilities is finalized, and the final purchase price
allocation is completed.
(3) The reported amounts reflect the issuance and sale of
the Series B Notes and additional borrowings under our
amended credit facility, which were utilized to fund the
7-Eleven ATM
Transaction. The unaudited pro forma condensed consolidated
statements of operations assume such debt was issued or borrowed
on January 1, 2006.
50
CARDTRONICS,
INC.
NOTES TO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The debt capitalization structure assumed to be outstanding for
all periods presented in the above pro forma financial
statements is as follows (in thousands):
|
|
|
|
|
$200.0 million
91/4% senior
subordinated notes due 2013 issued in August 2005, net of the
related discount
|
|
$
|
198,851
|
|
$100.0 million
91/4% senior
subordinated notes due 2013Series B issued in July
2007, net of the related discount
|
|
|
97,000
|
|
Revolving credit facility (including additional borrowings to
fund the 7-Eleven ATM Transaction)
|
|
|
102,954
|
|
Other long-term and current debt obligations, including capital
lease obligations
|
|
|
6,881
|
|
|
|
|
|
|
Total pro forma debt
|
|
$
|
405,686
|
|
|
|
|
|
|
For purposes of computing the interest expense amounts
associated with the above debt structure, a weighted-average
rate of 9.03% has been utilized. Assuming an increase of
25 basis points in the floating borrowing rate under our
revolving credit facility, pro forma interest expense would have
increased by $257,000 for the year ended December 31, 2006
and $193,000 for the nine months ended September 30, 2007.
51
CARDTRONICS,
INC.
NOTES TO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following reconciliation provides additional details behind
the pro forma interest expense adjustment reflected in the
accompanying unaudited pro forma condensed consolidated
statement of operations for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
Interest expense associated with the senior subordinated notes
issued in August 2005 ($198.9 million at an effective
interest rate of 9.4%)
|
|
$
|
18,620
|
|
|
$
|
13,965
|
|
Interest expense associated with the Series B Notes issued
in July 2007 ($97.0 million at an effective interest rate
of 9.5%)
|
|
|
9,250
|
|
|
|
6,937
|
|
Interest expense associated with the pro forma revolving credit
facility balance ($103.0 million at an effective interest
rate of 7.8%)
|
|
|
8,030
|
|
|
|
6,023
|
|
Interest expense associated with other indebtedness, including
acquired capital lease obligations
|
|
|
651
|
|
|
|
452
|
|
Amortization of deferred financing costs associated with the
Series B Notes issued in July 2007 and amended revolving
credit facility ($1.7 million and $0.4 million
amortized on a straight-line basis over 6 years and
5 years, respectively)
|
|
|
353
|
|
|
|
265
|
|
Amortization of discount associated with the Series B Notes
issued in July 2007
|
|
|
500
|
|
|
|
375
|
|
Amortization of deferred financing costs associated with the
senior subordinated notes issued in August 2005 and revolving
credit facility
|
|
|
1,929
|
|
|
|
1,155
|
|
|
|
|
|
|
|
|
|
|
Pro forma interest expense
|
|
|
39,333
|
|
|
|
29,172
|
|
Elimination of the historical interest expense of Cardtronics,
Inc. and the 7-Eleven Financial Services Business
|
|
|
(25,592
|
)
|
|
|
(21,692
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma interest expense adjustment
|
|
$
|
13,741
|
|
|
$
|
7,480
|
|
|
|
|
|
|
|
|
|
|
Future maturities of our pro forma long-term debt and capital
lease obligations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Total
|
|
|
Long-term debt and capital lease obligations
|
|
$
|
968
|
|
|
$
|
1,454
|
|
|
$
|
1,692
|
|
|
$
|
1,327
|
|
|
$
|
1,189
|
|
|
$
|
403,205
|
|
|
$
|
409,835
|
|
(4) The reported amounts reflect the adjustments to the
historical depreciation and amortization expense resulting from
the effects of the preliminary purchase price allocations
associated with the 7-Eleven ATM Transaction. Such amounts are,
therefore, subject to change, and may change materially once the
valuation of the acquired assets and assumed liabilities is
finalized and the final purchase price allocation is completed.
The acquired tangible assets were assumed to have a
weighted-average remaining useful life of approximately
5.0 years and are being depreciated on a straight-line
basis over such period of time. The acquired intangible customer
contract/relationship is estimated to have a ten year life and
is being amortized over such period on a straight-line basis,
consistent with our past practice. The
52
CARDTRONICS,
INC.
NOTES TO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reported amounts also reflect the depreciation and accretion
amounts related to our estimated asset retirement obligations
associated with the acquired ATMs and
Vcomtm
units.
(5) For the year ended December 31, 2006, the
adjustment to income taxes reflects the statutory rates of 37.1%
for our U.S. operations (including the acquired
7-Eleven
Financial Services Business), 30.0% for our U.K. operations, and
0.0% for our Mexico operations. For the nine months ended
September 30, 2007, the adjustment to income taxes reflects
rates of 0.0% for our U.S. and Mexico operations and 30.0%
for our U.K. operations. During the nine months ended
September 30, 2007, we determined that a valuation
allowance of approximately $3.4 million should be
established for our net deferred tax asset amounts in the
U.S. based on our forecasted domestic pre-tax book loss for
the remainder of 2007 and as a result of the additional losses
expected to be incurred as a result of the 7-Eleven ATM
Transaction. For our Mexico operations, all current and deferred
tax benefits accruing to such operations have been fully
reserved for due to the uncertain future utilization of such
benefits.
(6) The pro forma share and per share information gives
effect to the anticipated stock split of our common stock in
connection with the offering. The stock split reflected in the
pro forma net income (loss) per share amounts reflects
(i) the conversion mechanics applicable to the
Series B Convertible Preferred Stock held by TA Associates,
as described in Certain Relationships and Related Party
Transactions, (ii) the conversion of the remaining
Series B Convertible Preferred Stock into an equal number
of common shares, and (iii) a resulting 8.1758 to 1 stock
split for all common shares, which will be effected immediately
prior to the closing of the offering. Such amounts assume the
offering occurs at the mid point of the price range reflected on
the cover of this prospectus.
(7) The Company presents Cost of ATM operating
revenues and Gross profit within its
consolidated financial statements exclusive of depreciation,
accretion and amortization. For the pro forma year ended
December 31, 2006 and the pro forma nine month period ended
September 30, 2007, the total depreciation, accretion, and
amortization excluded from cost of ATM operating revenues and
gross profit is $45.6 million and $39.0 million,
respectively. These amounts include the depreciation and
accretion related to assets under capital leases.
(8) Our Series B Convertible Preferred Stock is
expected to convert into shares of our common stock immediately
prior to our initial public offering. Of the 929,789 shares
of Series B Convertible Stock outstanding as of
September 30, 2007, 894,568 shares, which are held by
TA Associates, are assumed to convert into
11,798,000 shares of common stock (on a split-adjusted
basis) based on the midpoint of the estimated price range set
forth on the cover of this prospectus.
In connection with the above assumed conversion, the total
amount of our outstanding common stock and Series B
Convertible Preferred Stock prior to the initial public offering
(on both a converted and split-adjusted basis) will remain the
same. Accordingly, the incremental shares received by TA
Associates in connection with the above assumed beneficial
conversion will total approximately $33.0 million in value
based on the mid point of the estimated price range set forth on
the cover of this prospectus. Such amount would be reflected as
a reduction of our net income (or an increase in our net loss)
available to common shareholders immediately upon the conversion
of TA Associates Series B Convertible Preferred Stock
and the completion of our initial public offering.
53
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
expectation, 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 and elsewhere in this
prospectus. You should read the following discussion together
with the financial statements and the related notes included
elsewhere in this prospectus.
Our discussion and analysis includes the following:
|
|
|
|
|
Overview of Business
|
|
|
|
Recent Events
|
|
|
|
Impact of 7-Eleven ATM Transaction
|
|
|
|
Results of Operations
|
|
|
|
Liquidity and Capital Resources
|
|
|
|
Critical Accounting Polices and Estimates
|
|
|
|
New Accounting Pronouncements
|
|
|
|
Disclosure about Market Risk
|
We have also included a discussion of the recent 7-Eleven ATM
Transaction and the related financing transactions in certain
portions of the following discussion and analysis section in
order to provide some detail on the impact such transactions are
expected to have on our results of operations and liquidity and
capital resource requirements. In some cases, certain unaudited
pro forma financial and operational information has been
presented herein as if the 7-Eleven ATM Transaction occurred on
January 1, 2006. Such unaudited pro forma information is
presented for illustrative purposes only and is not necessarily
indicative of what our actual financial or operational results
would have been had the 7-Eleven ATM Transaction been
consummated on such date. Such unaudited pro forma information
should be read in conjunction with the historical audited and
unaudited financial statements, and accompanying notes thereto,
of Cardtronics and the 7-Eleven Financial Services Business, all
of which are included elsewhere in this prospectus.
Overview of
Business
As of September 30, 2007, we operated a network of
approximately 31,500 ATMs operating in all 50 states and
within the United Kingdom and Mexico. Our extensive ATM network
is strengthened by multi-year contractual relationships with a
wide variety of nationally and internationally-known merchants
pursuant to which we operate ATMs in their locations. We deploy
ATMs under two distinct arrangements with our merchant partners:
Company-owned and merchant-owned.
Company-Owned. Under a Company-owned
arrangement, we own or lease the ATM and are responsible for
controlling substantially all aspects of its operation. These
responsibilities include what we refer to as first line
maintenance, such as replacing paper, clearing paper or bill
jams, resetting the ATM, any telecommunications and power
issues, or other maintenance activities that do not require a
trained service technician. We are also responsible for what we
refer to as second line maintenance, which includes more complex
maintenance procedures that require trained service technicians
and often involve replacing component parts. In addition to
first and second line maintenance, we are responsible for
arranging for cash, cash
54
loading, supplies, telecommunications service, and all other
services required for the operation of the ATM, other than
electricity. We typically pay a fee, either periodically, on a
per-transaction basis or a combination of both, to the merchant
on whose premises the ATM is physically located. We operate a
limited number of our Company-owned ATMs on a merchant-assisted
basis. In these arrangements, we own the ATM and provide all
transaction processing services, but the merchant generally is
responsible for providing and loading cash for the ATM and
performing first line maintenance.
Typically, we deploy ATMs under Company-owned arrangements for
our national and regional merchant customers. Such customers
include
7-Eleven, BP
Amoco, Chevron, Costco, CVS Pharmacy, Duane Reade, ExxonMobil,
Hess Corporation, Rite Aid, Sunoco, Target, Walgreens, and
Winn-Dixie in the United States; Alfred Jones, Martin McColl,
McDonalds, The Noble Organisation, Odeon Cinemas, Spar,
Tates, and Vue Cinemas in the United Kingdom; and Fragua and
OXXO in Mexico. Because Company-owned locations are controlled
by us (i.e., we control the uptime of the machines), are usually
located in major national retail chains, and are thus more
likely candidates for additional sources of revenue such as bank
branding, they generally offer higher transaction volumes and
greater profitability, which we consider necessary to justify
the upfront capital cost of installing Company-owned machines.
As of September 30, 2007, we operated approximately
19,600 ATMs under Company-owned arrangements.
Merchant-Owned. Under a merchant-owned
arrangement, the merchant owns the ATM and is responsible for
its maintenance and the majority of the operating costs;
however, we generally continue to provide all transaction
processing services and, in some cases, retain responsibility
for providing and loading cash. We typically enter into
merchant-owned arrangements with our smaller, independent
merchant customers. In situations where a merchant purchases an
ATM from us, the merchant normally retains responsibility for
providing cash for the ATM. Because the merchant bears more of
the costs associated with operating ATMs under this arrangement,
the merchant typically receives a higher fee on a
per-transaction basis than is the case under a Company-owned
arrangement. In merchant-owned arrangements under which we have
assumed responsibility for providing and loading cash and/or
second line maintenance, the merchant receives a smaller fee on
a per-transaction basis than in the typical merchant-owned
arrangement. As of September 30, 2007, we operated
approximately 11,900 ATMs under merchant-owned
arrangements. The 7-Eleven ATM Transaction did not add any
merchant-owned ATMs to our portfolio.
In the future, we expect the percentage of our Company-owned and
merchant-owned arrangements to continue to fluctuate in response
to the mix of ATMs we add through internal growth and
acquisitions. While we may continue to add merchant-owned ATMs
to our network as a result of acquisitions and internal sales
efforts, our focus for internal growth will remain on expanding
the number of Company-owned ATMs in our network due to the
higher margins typically earned and the additional revenue
opportunities available to us under Company-owned arrangements.
In-House Transaction Processing. We are in the
process of converting our ATMs from various third-party
transaction processing companies to our own in-house transaction
processing platform, thus providing us with the ability to
control the processing of transactions conducted in our network
of ATMs. We expect that this will provide us with the ability to
control the content of the information appearing on the screens
of our ATMs, which should in turn serve to increase the types of
products and services that we will be able to offer to financial
institutions. For example, with the ability to control screen
flow, we expect to be able to offer customized branding
solutions to financial institutions, including one-to-one
marketing and advertising services at the point of transaction.
Additionally, we expect that this move will provide us with
future operational cost savings in terms of lower overall
processing costs. We currently expect that it will cost us
approximately $3.0 million to convert our current network
55
of ATMs over to our in-house transaction processing switch, of
which approximately $1.7 million has been incurred through
September 30, 2007.
As our in-house transaction processing efforts are focused on
controlling the flow and content of information on the ATM
screen, we will continue to rely on third party service
providers to handle the back-end connections to the electronic
funds transfer (EFT) networks and various fund
settlement and reconciliation processes for our Company-owned
accounts. As of October 31, 2007, we had converted
approximately 10,000 ATMs over to our in-house transaction
processing switch, and we currently expect this initiative to be
completed by December 31, 2008.
For a discussion of trends in the ATM industry, see The
ATM Industry Recent Trends in the U.S. ATM
Industry and The ATM Industry Developing
Trends in the ATM Industry.
Components of
Revenues, Cost of Revenues, and Expenses
Revenues
We derive our revenues primarily from providing ATM services
and, to a lesser extent, from branding arrangements and sales of
ATM equipment. We have historically classified revenues into two
primary categories: ATM operating revenues and ATM product sales
and other revenues. In reporting periods subsequent to the
7-Eleven ATM Transaction, we will have a separate revenue
category for the advanced-functionality services provided
through the acquired
Vcomtm
units.
ATM Operating Revenues. We present revenues
from ATM services and branding arrangements as ATM
operating revenues in the accompanying consolidated
statements of operations. These revenues include the fees we
earn per transaction on our network, fees we generate from
network and bank branding arrangements, and fees earned from
providing certain maintenance services. Our revenues from ATM
services have increased rapidly in recent years due to the
acquisitions we completed since 2001, as well as through
internal expansion of our existing and acquired ATM networks.
Our ATM operating revenues primarily consist of the three
following components: surcharge revenue, interchange revenue,
and branding 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, surcharge fees are generally less
than those charged in the United States.
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Interchange Revenue. An interchange fee is a
fee 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
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.
In the United Kingdom, interchange fees are earned on all ATM
transactions other than surcharge-bearing cash
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56
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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 (except for in the U.K.) for balance inquiries
and fund transfers and higher for withdrawals transactions.
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Branding Revenue. We generate branding revenue
in a variety of ways. 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. We believe that this type of branding arrangement will
typically result in an increase in transaction levels at the
branded ATMs, as existing customers continue to use the ATMs and
new customers of the branding financial institution are
attracted by the surcharge-free service. Additionally, although
we forego the surcharge fee on ATM transactions by the branding
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 our ATMs.
Overall, based on the above, we believe a branding arrangement
can substantially increase the profitability of an ATM versus
operating the same machine in an unbranded mode. Fees paid for
branding an ATM vary widely within our industry, as well as
within our own operations. We expect that this variance in
branding fees will continue in the future. However, because our
strategy is to set branding fees at levels sufficient to offset
lost surcharge revenue, we do not expect any such variance to
cause a decrease in our total revenues.
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We also generate branding revenue from the ATMs we include in
our nationwide surcharge-free Allpoint network, of which we are
the owner and largest ATM deployer, as well as our recently
instituted
MasterCard®
surcharge-free network. Network branding is an arrangement where
a financial institutions customers are allowed to use most
of our nationwide ATM network on a surcharge-free basis. In the
case of the Allpoint surcharge-free network, each participating
financial institution pays us a fixed fee per cardholder to
participate in the network. Under the
MasterCard®
surcharge-free network, we receive a fee from
MasterCard®
for each surcharge-free withdrawal transaction conducted on our
network. Although we forego surcharge revenues on those
transactions, we do earn interchange revenues in addition to
network branding revenues, which are meant to compensate us for
the loss of surcharge revenues. We believe that many of these
surcharge-free transactions are represent withdrawal
transactions from cardholders who have not previously utilized
the underlying ATMs, and these increased transaction counts
often more than offset the foregone surcharge. Consequently, we
believe that network branding arrangements can enable us to
profitably operate in the significant portion of the ATM
transaction market that does not involve a surcharge.
The 7-Eleven ATMs that we acquired currently participate in the
CO-OP®
network, the nations largest surcharge-free network
devoted exclusively to credit unions. Additionally, in June
2006, 7-Eleven entered into an arrangement with Financial
Services Centers Cooperative, Inc. (FSCC), a
cooperative service organization providing shared branching
services for credit unions, to provide virtual branching
services through its
Vcomtm
machines for members of the FSCC network.
57
The following table sets forth information on our historical and
pro forma surcharge, interchange, and branding revenues per
withdrawal transaction for the periods indicated. The pro forma
information presented below assumes the 7-Eleven ATM Transaction
occurred effective January 1, 2006 but does not include any
revenues and transactions associated with providing the
Vcomtm
advanced-functionality services for such periods.
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Pro Forma
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Nine Months
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Nine Months
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Pro Forma Nine
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Year Ended
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Year Ended
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Ended
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Ended
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Months Ended
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December 31,
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December 31,
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September 30,
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September 30,
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September 30,
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2004
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2005
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2006
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2006
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2006
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2007
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2007
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Per withdrawal
transaction(1):
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Surcharge
revenue (2)
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$
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1.45
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$
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1.52
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$
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1.52
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$
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1.39
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$
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1.52
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$
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1.40
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$
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1.32
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Interchange
revenue (3)
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0.60
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0.56
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0.55
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0.57
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0.55
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0.57
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0.59
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Branding
revenue (4)
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0.02
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0.06
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0.13
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0.18
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0.12
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0.20
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0.21
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Other
revenue(5)
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0.03
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0.04
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0.05
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0.03
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0.04
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0.04
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0.02
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Total ATM operating revenues
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$
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2.10
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$
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2.18
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$
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2.25
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$
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2.17
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$
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2.23
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$
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2.21
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$
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2.14
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(1) |
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Amounts calculated based on total
withdrawal transactions, including surcharge withdrawal
transactions and surcharge-free withdrawal transactions.
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(2) |
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Excluding surcharge-free
withdrawal transactions, the per transaction amounts would have
been $1.53, $1.70, and $1.80 for the years ended
December 31, 2004, 2005 and 2006, respectively, $1.77 and
$1.87 for the nine months ended September 30, 2006 and
2007, respectively, and $1.76 and $1.84 for the pro forma year
ended December 31, 2006 and pro forma nine months ended
September 30, 2007, respectively.
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(3) |
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Amounts calculated based on total
interchange revenues earned on all transaction types, including
withdrawals, balance inquiries, transfers, and surcharge-free
transactions.
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(4) |
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Amounts include all bank and
network branding revenues, the majority of which are not earned
on a per transaction basis.
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(5) |
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Amounts include other miscellaneous
ATM operating revenues.
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The following table breaks down our total historical and pro
forma ATM operating revenues into its various components for the
years indicated:
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Pro Forma
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Nine Months
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Nine Months
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Pro Forma Nine
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Year Ended
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Year Ended
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Ended
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Ended
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Months Ended
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December 31,
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December 31,
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September 30,
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September 30,
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September 30,
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2004
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2005
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2006
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2006
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2006
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2007
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2007
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Surcharge revenues
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68.9
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%
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69.9
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%
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67.5
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%
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64.2
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%
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68.1
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%
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63.2
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%
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61.7
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%
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Interchange revenues
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28.3
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25.7
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24.5
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26.2
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24.6
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26.0
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27.4
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Branding revenues
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1.3
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2.6
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6.0
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8.3
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5.3
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9.2
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9.7
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Other revenues
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1.5
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1.8
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2.0
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1.3
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2.0
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1.6
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1.2
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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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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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Vcomtm
Operating Revenues. The 7-Eleven ATM Transaction
provided us with approximately 2,000 advanced-functionality
financial self-service kiosks branded as
Vcomtm
terminals that, in addition to standard ATM services, offer more
sophisticated financial services, including check cashing, money
transfer, and bill payment services (collectively, the
Vcomtm
Services). We plan to continue to offer some of the
Vcomtm
Services, but in doing so, expect to incur operating losses
associated with that portion of the acquired business. See
Impact of
7-Eleven ATM
Transaction below for additional information on the
expected impact of the
Vcomtm
Services on our future operating results.
The substantial majority of the historic revenues from the
Vcomtm
Services consist of upfront placement fees, which represent
upfront payments from third-party service providers
58
associated with providing certain of the advanced-functionality
services. Most of these fees consist of payments received by
7-Eleven from a telecommunications provider. Such fees were
amortized to revenues over the underlying contractual period,
and there are no more significant payments due to us under these
contracts. Therefore, in order for such placement fees to be
received in the future, new contracts must be negotiated, but
such negotiation is not assured. Accordingly, the percentage of
Vcomtm
operating revenues related to placement fees are expected to be
considerably lower in the future.
ATM Product Sales and Other Revenues. We
present revenues from the sale of ATMs and other non-transaction
based revenues as ATM product sales and other
revenues in the accompanying consolidated statements of
operations. These revenues consist primarily of sales of ATMs
and related equipment to merchants operating under
merchant-owned arrangements, as well as sales under our
value-added reseller program with NCR. While we expect to
continue to derive a portion of our revenues from direct sales
of ATMs in the future, we expect that this source of revenue
will not comprise a substantial portion of our total revenues in
future periods.
Cost of
Revenues
Our cost of revenues consists of those costs directly associated
with ATM transactions completed on our ATM network. Such costs,
which will also be incurred to handle transactions completed on
the ATM and
Vcomtm
units acquired as part of the 7-Eleven ATM Transaction, include:
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Merchant Fees. We pay our merchants a fee that
depends on a variety of factors, including the type of
arrangement under which the ATM is placed and the number of
transactions at that ATM. The merchant fees to be paid to
7-Eleven pursuant to the placement agreement executed upon the
closing of the transaction are consistent with the types and
amounts of fees that are paid to our other merchant customers.
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Processing Fees. We pay fees to third-party
vendors for processing transactions originated at our ATMs.
These vendors, which include Star Systems, Fiserv, RBSLynk
(Lynk, a subsidiary of The Royal Bank of Scotland
Group), and Elan Financial Services, communicate with the
cardholders financial institution through EFT networks to
gain transaction authorization and to settle transactions. As
previously noted, we are in the process of converting most of
our ATMs over to our own in-house processing switch, which
should result in a slight reduction in our overall processing
costs in the future. For the acquired 7-Eleven ATMs, Fiserv is
currently under contract to provide the transaction processing
services through 2009. For the
Vcomtm
units, 7-Eleven utilizes its own in-house transaction processing
switch, which we acquired as part of the 7-Eleven ATM
Transaction, that is the same type of processing switch we
utilize for our own in-house processing activities. Accordingly,
we will continue to utilize this switch to process the
transactions conducted on the acquired
Vcomtm
units subsequent to the acquisition.
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Cost of Cash. Cost of cash includes all costs
associated with our provision of vault cash for our ATMs,
including fees for the use of cash, armored courier services,
insurance, cash reconciliation, and associated wire fees. We
entered into a new cash provider agreement with Wells Fargo Bank
to provide vault cash for the ATM and
Vcomtm
units acquired from 7-Eleven. As the fees we pay under our
contracts with our cash providers are based on market rates of
interest, changes in interest rates could affect our cost of
cash. However, we have entered into a number of interest rate
swap transactions to hedge our exposure through 2010 on varying
amounts of our current and anticipated outstanding domestic ATM
cash balances, including the acquired 7-Eleven ATMs.
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59
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Communications. Under our Company-owned
arrangements, we are generally responsible for expenses
associated with providing telecommunications capabilities to the
ATMs, allowing the ATMs to connect with the applicable EFT
network.
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Repairs and Maintenance. Depending on the type
of arrangement with the merchant, we may be responsible for
first and/or
second line maintenance for the ATM. We typically use third
parties with national operations to provide these services. Our
primary maintenance vendors are Diebold, NCR, and Pendum. NCR
will serve as the primary maintenance provider for the acquired
7-Eleven ATMs.
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Direct Operations. These expenses consist of
costs associated with managing our ATM network, including
expenses for monitoring the ATMs, program managers, technicians,
and customer service representatives.
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Cost of Equipment Revenue. In connection with
the sale of equipment to merchants and value added resellers, we
incur costs associated with purchasing equipment from
manufacturers, as well as delivery and installation expenses.
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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 approximately 52.7% of our cost of ATM operating revenues
(exclusive of depreciation, accretion, and amortization) for the
nine months ended September 30, 2007 (53.6% on a pro forma
basis for the 7-Eleven ATM Transaction). Therefore, we estimate
that approximately 47.3% (or 46.4% on a pro forma basis) of our
cost of ATM operating revenues is generally fixed in nature,
meaning that any significant decrease in transaction volumes
would lead to a decrease in the profitability of our ATM service
operations, unless there were an offsetting increase in
per-transaction revenues or decrease in our fixed costs. The
inclusion of depreciation, accretion, and amortization expense
for ATMs and ATM-related assets in our cost of ATM operating
revenues would have increased the percentage of our cost of ATM
operating revenues that we consider fixed in nature by
approximately 7.4% for the nine months ended September 30,
2007 (or 7.2% on a pro forma basis).
The profitability of any particular ATM location, and of our
entire ATM services operation, is driven by a combination of
surcharge, interchange, and branding 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 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 of the ATMs we
own, amortization of our acquired merchant contracts, and
interest expense related to borrowings under our bank credit
facility and our senior subordinated notes. We depreciate our
capital equipment on a straight-line basis over the estimated
life of such equipment and amortize the value of acquired
merchant contracts over the estimated lives of such assets.
Recent
Events
7-Eleven ATM Transaction. On July 20,
2007, we purchased substantially all of the assets of the
financial services business of 7-Eleven for approximately
$138.0 million in cash. Such amount included a
$2.0 million payment for estimated acquired working capital
and approximately $1.0 million in other related closing
costs. Subsequent to September 30, 2007, the working
capital payment was reduced to $1.3 million based on the
actual working capital
60
amounts outstanding as of the acquisition date, thus reducing
the Companys overall cost of the acquisition to
$137.3 million. The
7-Eleven ATM
Transaction included approximately 5,500 ATMs located in
7-Eleven stores throughout the United States, of which
approximately 2,000 are advanced-functionality
Vcomtm
terminals. In connection with the 7-Eleven ATM Transaction, we
entered into a placement agreement that will provide us, subject
to certain conditions, a ten-year exclusive right to operate all
ATMs and
Vcomtm
units in
7-Eleven
locations throughout the United States, including any new stores
opened or acquired by
7-Eleven.
The operating results of our United States segment now include
the results of the traditional ATM operations of the acquired
7-Eleven Financial Services Business, including the traditional
ATM activities conducted on the
Vcomtm
units. Additionally, as a result of the distinctly different
functionality provided by and expected economic results of the
Vcomtm
Services, such operations have been identified as a separate
reportable segment. Because of the significance of this
acquisition, our operating results for the three and nine month
periods ended September 30, 2007 and our future operating
results will not be comparable to our historical results. In
particular, we expect a number of our revenue and expense line
items to increase substantially as a result of this acquisition.
While we expect our revenues and gross profits to increase
substantially as a result of the 7-Eleven ATM Transaction, such
amounts will initially be substantially offset by higher
operating expense amounts, including higher selling, general,
and administrative expenses associated with running the combined
operations. Additionally, depreciation, amortization, and
accretion expense amounts will increase significantly as a
result of the tangible and intangible assets recorded as part of
the acquisition. Furthermore, because we financed the
acquisition through the issuance of additional senior
subordinated notes and borrowings under our amended revolving
credit facility, our interest expense, including the
amortization of the related deferred financing costs, will
increase significantly.
Historically, the
Vcomtm
Services have generated operating losses (excluding upfront
placement fees, which are unlikely to recur at such levels in
the future). We estimate that such losses totaled approximately
$6.6 million and $7.8 million for the year ended
December 31, 2006 and the nine months ended
September 30, 2007, respectively. Despite these losses, we
plan to continue to operate the
Vcomtm
units and restructure the
Vcomtm
Services to improve the underlying financial results of that
portion of the acquired business. By continuing to provide the
Vcomtm
Services for a period of
12-18 months
following the acquisition, we currently expect that we may incur
up to $10.0 million in operating losses, including
potential contract termination costs. Subsequent to our
acquisition on July 20, 2007 and through September 30,
2007, the
Vcomtm
Services generated an operating loss of $2.1 million, a
level consistent with our expectations at closing. In the event
we are unsuccessful in our efforts and our cumulative losses
reach $10.0 million (including termination costs which we
currently estimate would be approximately $1.5 million),
our current intent is to terminate the
Vcomtm
Services and utilize the existing
Vcomtm
machines to provide traditional ATM services. If we terminate
the
Vcomtm
Services, we believe that the financial results of the acquired
7-Eleven operations would improve considerably. However, until
the
Vcomtm
Services are successfully restructured or terminated, they are
expected to have a continuing negative impact on our ongoing
domestic operating results and related margins.
Financing Transactions. On July 20, 2007,
we sold $100.0 million of
91/4% senior
subordinated notes due 2013Series B (the
Series B Notes) pursuant to Rule 144A of
the Securities Act of 1933 to help fund the 7-Eleven ATM
Transaction. The form and terms of the Series B Notes are
substantially the same as the form and terms of the
$200.0 million senior subordinated notes issued in August
2005, except that (i) the notes issued in August 2005 have
been registered with the Securities and Exchange Commission
while the Series B Notes remain subject to transfer
restrictions until we complete an exchange offer, and
(ii) the Series B Notes were issued with Original
Issue Discount and have an effective yield of 9.54%. We agreed
to
61
file a registration statement with the SEC within 240 days
of the issuance of the Series B Notes with respect to an
offer to exchange each of the Series B Notes for a new
issue of our debt securities registered under the Securities Act
with terms identical to those of the Series B Notes (except
for the provisions relating to the transfer restrictions and
payment of additional interest) and to use reasonable best
efforts to have the exchange offer become effective as soon as
reasonably practicable after filing but in any event no later
than 360 days after the initial issuance date of the
Series B Notes. If we fail to satisfy our registration
obligations, we will be required, under certain circumstances,
to pay additional interest to the holders of the Series B
Notes.
In July 2007, in conjunction with the 7-Eleven ATM Transaction,
we amended our revolving credit facility to, among other things,
(i) increase the maximum borrowing capacity under the
revolver from $125.0 million to $175.0 million in
order to partially finance the 7-Eleven ATM transaction and to
provide additional financial flexibility, (ii) increase the
amount of indebtedness (as defined in the Credit
Agreement) to allow for the new issuance of the notes described
above, (iii) extend the term of the Credit Agreement from
May 2010 to May 2012, (iv) increase the amount of capital
expenditures we can incur on a rolling
12-month
basis from $60.0 million to a maximum of
$75.0 million, and (v) amend certain restrictive
covenants contained within the facility. This amendment, which
was contingent upon the closing of the acquisition of the ATM
business of 7-Eleven, became effective on July 20, 2007.
In May 2007, we amended our revolving credit facility to modify,
among other items, (i) the interest rate spreads on
outstanding borrowings and other pricing terms, and
(ii) certain restrictive covenants contained within the
facility. Such modification will allow for reduced interest
expense in future periods, assuming a constant level of
borrowing.
Merchant-Owned Account Attrition. In general,
we have experienced nominal turnover among our customers with
whom we enter into Company-owned arrangements and have been very
successful in negotiating contract renewals with those
customers. Conversely, we have historically experienced a higher
turnover rate among our smaller merchant-owned customers, with
our domestic merchant-owned account base declining by
approximately 1,000 machines from September 30, 2006
to September 30, 2007. While part of this attrition was due
to an internal initiative launched by us in 2006 to identify and
either restructure or eliminate certain underperforming
merchant-owned accounts, an additional driver of this attrition
was local and regional independent ATM service organizations
that are targeting our smaller merchant-owned accounts upon the
termination of the merchants contracts with us, or upon a
change in the merchants ownership, which can be a common
occurrence. Accordingly, we launched an internal initiative to
identify and retain those merchant-owned accounts where we
believed it made economic sense to do so. Our retention efforts
to date have been successful, as we have seen a decline in the
attrition rates in the first nine months of 2007 compared to the
same period in 2006. Specifically, our attrition rate during the
nine months ended September 30, 2007 was approximately
500 ATMs compared to over 1,500 ATMs during 2006.
However, we still cannot predict whether such efforts will
continue to be successful in reducing the attrition rate.
Furthermore, because of our efforts to eliminate certain
underperforming accounts, we may continue to experience a
downward trend in our merchant-owned account base for the
foreseeable future. Finally, because the EFT networks have
required that all ATMs be Triple-DES compliant by the end of
2007, it is likely that we will lose some additional
merchant-owned accounts during the remainder of this year as
some merchants with low transacting ATMs may decide to dispose
of their ATMs rather than incur the costs to upgrade or replace
their existing machines.
Intangible Asset Impairments. During the nine
months ended September 30, 2007, we recorded approximately
$5.3 million of impairment charges related to our
intangible assets, of which $5.1 million relates to our
merchant contract with Target, which was acquired in 2004. We
have continued to monitor the ATM operations agreement with this
particular merchant
62
customer as the future cash flows associated with that contract
may be insufficient to support the related unamortized
intangible and tangible asset values. We have also been in
discussions with this particular merchant customer 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 progress in this regard during the
quarter ended September 30, 2007, and, based on discussions
that have been held with this merchant, have concluded that the
likelihood of being able to provide such additional services has
decreased considerably. Furthermore, average monthly transaction
volumes associated with this particular contract have continued
to decrease in 2007 when compared to the same period last year.
Accordingly, we concluded that the above impairment charge was
warranted as of September 30, 2007. The impairment charge
recorded served to write-off the remaining unamortized
intangible asset associated with this merchant.
We plan to continue to work with this merchant customer to offer
the additional services noted above, which we believe could
significantly increase the future cash flows earned under this
contract. Absent our ability to do this, we will attempt to
restructure the terms of the existing contract in an effort to
improve the underlying cash flows associated with such contract.
Valuation Allowance. During the nine months
ended September 30, 2007, we recorded a $3.4 million
valuation allowance to reserve for the estimated net deferred
tax asset balance associated with our domestic operations. Such
adjustment was based, in part, on the expectation of increased
pre-tax book losses through the remainder of 2007, primarily as
a result of the additional interest expense associated with the
7-Eleven ATM Transaction, coupled with the anticipated losses
associated with the acquired
Vcomtm
operations.
Impact of
7-Eleven ATM Transaction
As outlined above, on July 20, 2007, we purchased
substantially all of the assets of the
7-Eleven
Financial Services Business. Because of the significance of this
acquisition, our historical operating results are not expected
to be indicative of our future operating results. In particular,
we expect a number of our revenue and expense line items to
increase substantially upon the consummation of this
acquisition. The following table reflects our historical
operating results for selected income statement line items for
the year ended December 31, 2006, and the same line items
on a pro forma basis assuming the 7-Eleven ATM Transaction and
the related financing transactions occurred effective
January 1, 2006. Such pro forma amounts exclude the
majority of the upfront placement fee revenues associated with
the acquired
Vcomtm
operations in an effort to depict the potential on-going
operating results of the acquired
7-Eleven ATM
operations.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(in thousands)
|
|
|
Revenues
|
|
$
|
293,605
|
|
|
$
|
439,285
|
(1)
|
Cost of revenues (exclusive of depreciation and amortization
expense, shown separately below)
|
|
|
221,293
|
|
|
|
337,185
|
|
Selling, general and administrative expenses
|
|
|
21,667
|
|
|
|
27,580
|
|
Depreciation and amortization expense
|
|
|
30,578
|
|
|
|
46,999
|
|
Interest expense
|
|
|
25,072
|
|
|
|
39,333
|
|
Loss before income taxes
|
|
|
(19
|
)
|
|
|
(6,826
|
)(1)
|
|
|
|
(1)
|
|
Excludes $18.0 million of
upfront placement fees associated with the acquired
Vcomtm
operations.
|
63
While our revenues and gross profits are expected to increase
substantially as a result of the 7-Eleven ATM Transaction, such
amounts will initially be substantially offset by higher
operating expense amounts, including higher selling, general,
and administrative expenses associated with running the combined
operations. Additionally, we expect depreciation, amortization,
and accretion expense amounts to increase significantly as a
result of the tangible and intangible assets recorded as part of
the acquisition. Furthermore, because we financed this
acquisition with the issuance of our Series B Notes, along
with borrowings under our amended revolving credit facility, we
expect that our interest expense, including the amortization of
the related deferred financing costs, will increase
significantly.
Excluding the majority of the upfront placement fees, the
Vcomtm
Services have historically generated operating losses,
including, based upon our analysis, $6.6 million and
$7.8 million for the year ended December 31, 2006 and
the nine months ended September 30, 2007, respectively.
Despite these losses, we plan to continue to operate the
Vcomtm
units following the completion of the acquisition and
restructure the
Vcomtm
Services to improve the underlying financial results of that
portion of the acquired business. By continuing to provide the
Vcomtm
Services for the
12-18 months
following the acquisition, we currently expect that we may incur
up to $10.0 million in operating losses, including
$1.5 million in contract termination costs. However, in the
event we are unsuccessful in our efforts and our cumulative
losses (including termination costs) reach $10.0 million,
our current intent is to terminate the
Vcomtm
Services and utilize the existing
Vcomtm
machines to provide traditional ATM services. If we terminate
the
Vcomtm
Services, we believe that the financial results of the acquired
7-Eleven Financial Services Business could considerably improve.
64
Results of
Operations
The following table sets forth our statement of operations
information as a percentage of total revenues for the periods
indicated. Figures may not add due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
|
94.7
|
%
|
|
|
96.3
|
%
|
|
|
95.7
|
%
|
|
|
95.8
|
%
|
|
|
96.0
|
%
|
Vcomtm
operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
ATM product sales and other revenues
|
|
|
5.3
|
|
|
|
3.7
|
|
|
|
4.3
|
|
|
|
4.2
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization, shown separately
below)(1)
|
|
|
74.4
|
|
|
|
74.3
|
|
|
|
71.5
|
|
|
|
71.9
|
|
|
|
72.8
|
|
Cost of
Vcomtm
operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
Cost of ATM product sales and other revenues
|
|
|
4.5
|
|
|
|
3.6
|
|
|
|
3.9
|
|
|
|
3.7
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
78.9
|
|
|
|
77.9
|
|
|
|
75.4
|
|
|
|
75.6
|
|
|
|
77.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
21.1
|
|
|
|
22.1
|
|
|
|
24.6
|
|
|
|
24.4
|
|
|
|
22.7
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
7.0
|
|
|
|
6.6
|
|
|
|
7.4
|
|
|
|
7.2
|
|
|
|
8.0
|
|
Depreciation and accretion expense
|
|
|
3.5
|
|
|
|
4.8
|
|
|
|
6.3
|
|
|
|
6.4
|
|
|
|
7.1
|
|
Amortization
expense(2)
|
|
|
2.9
|
|
|
|
3.3
|
|
|
|
4.1
|
|
|
|
4.4
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
13.4
|
|
|
|
14.7
|
|
|
|
17.8
|
|
|
|
18.0
|
|
|
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
7.7
|
|
|
|
7.4
|
|
|
|
6.8
|
|
|
|
6.4
|
|
|
|
2.2
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
2.7
|
|
|
|
8.4
|
|
|
|
8.5
|
|
|
|
8.6
|
|
|
|
8.2
|
|
Minority interest in subsidiary
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Other, net
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
(1.6
|
)
|
|
|
(0.3
|
)
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
2.8
|
|
|
|
8.8
|
|
|
|
6.8
|
|
|
|
8.2
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
4.9
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
(6.3
|
)
|
Income tax provision (benefit)
|
|
|
1.9
|
|
|
|
(0.5
|
)
|
|
|
(0.2
|
)
|
|
|
(0.6
|
)
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
3.0
|
%
|
|
|
(0.9
|
)%
|
|
|
(0.2
|
)%
|
|
|
(1.2
|
)%
|
|
|
(7.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes effects of depreciation, accretion, and amortization
expense of $11.4 million, $20.6 million, and
$29.2 million for the years ended December 31, 2004,
2005, and 2006, respectively, and $22.6 million and
$31.3 million for the nine month periods ended
September 30, 2006 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 5.9%, 7.7%, and 9.9% for the years ended
December 31, 2004, 2005, and 2006, respectively, and 10.3%
and 12.0% for the nine month periods ended September 30,
2006 and 2007, respectively. |
|
|
|
(2) |
|
Includes pretax impairment charges of $1.2 million and
$2.8 million in 2005 and 2006, respectively, and
$2.8 million and $5.3 million for the nine months
ended September 30, 2006 and 2007, respectively. |
65
Key Operating
Metrics
We rely on certain key measures to gauge our operating
performance, including total withdrawal transactions, withdrawal
transactions per ATM, gross profit, gross profit margin per
withdrawal transaction, and gross profit per ATM. The following
table sets forth these measures based on our historical results
for the periods indicated and the same measures for the year
ended December 31, 2006 and the nine months ended
September 30, 2007 on a pro forma basis giving effect
to the 7-Eleven ATM Transaction as if it had occurred on
January 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
Nine Months
|
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
Ended September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
Average number of transacting ATMs
|
|
|
17,936
|
|
|
|
26,164
|
|
|
|
25,778
|
|
|
|
31,301
|
|
|
|
25,913
|
|
|
|
27,149
|
|
|
|
31,033
|
|
Total transactions (in thousands)
|
|
|
111,577
|
|
|
|
156,851
|
|
|
|
172,808
|
|
|
|
264,431
|
|
|
|
128,539
|
|
|
|
166,183
|
|
|
|
222,360
|
|
Monthly total transactions per
ATM (1)
|
|
|
518
|
|
|
|
500
|
|
|
|
559
|
|
|
|
704
|
|
|
|
551
|
|
|
|
680
|
|
|
|
796
|
|
Total withdrawal transactions (in thousands)
|
|
|
86,821
|
|
|
|
118,960
|
|
|
|
125,078
|
|
|
|
192,107
|
|
|
|
93,756
|
|
|
|
113,934
|
|
|
|
155,100
|
|
Monthly withdrawal transactions per ATM
|
|
|
403
|
|
|
|
379
|
|
|
|
404
|
|
|
|
511
|
|
|
|
402
|
|
|
|
466
|
|
|
|
555
|
|
Per withdrawal transaction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
2.10
|
|
|
$
|
2.18
|
|
|
$
|
2.25
|
|
|
$
|
2.17
|
|
|
$
|
2.23
|
|
|
$
|
2.21
|
|
|
$
|
2.14
|
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and
amortization) (2)
|
|
|
1.65
|
|
|
|
1.68
|
|
|
|
1.68
|
|
|
|
1.61
|
|
|
|
1.67
|
|
|
|
1.68
|
|
|
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating gross
profit (2)(3)(4)
|
|
$
|
0.45
|
|
|
$
|
0.50
|
|
|
$
|
0.57
|
|
|
$
|
0.56
|
|
|
$
|
0.56
|
|
|
$
|
0.53
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per ATM per month:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
849
|
|
|
$
|
825
|
|
|
$
|
908
|
|
|
$
|
1,110
|
|
|
$
|
898
|
|
|
$
|
1,031
|
|
|
$
|
1,186
|
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and
amortization) (5)
|
|
|
667
|
|
|
|
636
|
|
|
|
678
|
|
|
|
825
|
|
|
|
674
|
|
|
|
782
|
|
|
|
895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating gross
profit (3)(4)(5)
|
|
$
|
182
|
|
|
$
|
189
|
|
|
$
|
230
|
|
|
$
|
285
|
|
|
$
|
224
|
|
|
$
|
249
|
|
|
$
|
291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating gross profit margin (exclusive
of depreciation, accretion, and
amortization) (2)(4)
|
|
|
21.4
|
%
|
|
|
22.9
|
%
|
|
|
25.3
|
%
|
|
|
25.8
|
%
|
|
|
25.0
|
%
|
|
|
24.1
|
%
|
|
|
24.5
|
%
|
ATM operating gross profit margin (inclusive of depreciation,
accretion, and
amortization) (6)
|
|
|
15.2
|
%
|
|
|
14.9
|
%
|
|
|
14.9
|
%
|
|
|
14.9
|
%
|
|
|
14.2
|
%
|
|
|
11.7
|
%
|
|
|
12.8
|
%
|
|
|
|
(1)
|
|
The historical 2007 average number
of transacting ATMs for the nine months ended September 30,
2007 includes the ATMs acquired in the
7-Eleven ATM
Transaction beginning from the acquisition date (July 20,
2007) and continuing through September 30, 2007. The
historical 2006 average numbers of transacting ATMs for the year
ended December 31, 2006 and nine months ended
September 30, 2006 includes the ATMs of our Mexico
operations beginning from the acquisition date (February 8,
2006) and continuing through December 31, 2006 and
September 30, 2006, respectively.
|
|
(2)
|
|
Excludes effects of depreciation,
accretion, and amortization expense of $11.4 million,
$20.6 million, and $29.2 million for the years ended
December 31, 2004, 2005, and 2006, respectively,
$45.6 million for the pro forma year ended
December 31, 2006, $22.6 million and
$31.3 million for the nine month periods ended
September 30, 2006 and 2007, respectively, and
$39.0 million for the pro forma nine month period ended
September 30, 2007. 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 withdrawal transaction and decreased our
ATM operating gross profit per withdrawal transaction by $0.13,
$0.17, and $0.23 for the years ended December 31, 2004,
2005, and 2006, respectively, $0.24 for the pro forma year ended
December 31, 2006, $0.24 and $0.27 for the nine month
periods ended September 30, 2006 and 2007, respectively,
and $0.25 for the pro forma nine month period ended
September 30, 2007.
|
66
|
|
|
(3)
|
|
ATM operating gross profit is a
measure of profitability that uses only the revenues and
expenses that are transaction-based. The revenues and expenses
from ATM equipment sales,
Vcomtm
Services, and other ATM-related services are not included.
|
|
(4)
|
|
The increase in ATM operating gross
profit margin (exclusive of depreciation, accretion, and
amortization) in 2006 when compared to 2005 is due to the
increases in revenues associated with the Companys bank
and network branding initiatives, increased surcharge rates in
selected merchant retail locations, and higher gross profit
margins associated with our United Kingdom portfolio of ATMs
(which was acquired in May 2005). The decrease in ATM operating
gross profit margins in 2007 is primarily due to higher vault
cash costs and costs incurred in connection with our Triple-DES
upgrade and in-house processing conversion costs.
|
|
(5)
|
|
The inclusion in Cost of ATM
operating revenues of the depreciation, accretion, and
amortization expensed referenced in Note 2 above 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 $53, $66, and $94 for the years ended December 31, 2004,
2005, and 2006, respectively, $121 for the pro forma year ended
December 31, 2006, $97 and $128 for the nine month periods
ended September 30, 2006 and 2007, respectively, and $140
for the pro forma nine month period ended September 30,
2007.
|
|
(6)
|
|
The decrease in ATM operating gross
profit margin (inclusive of depreciation, accretion, and
amortization) in 2007 when compared to 2006 is primarily due to
higher depreciation and accretion expense associated with recent
ATM deployments in the United Kingdom and Mexico, which have yet
to achieve the higher consistent recurring transaction levels
seen in our more mature ATMs, and the incremental amortization
expense related to an intangible asset impairment recorded in
the third quarter of 2007.
|
Three and Nine
Months Ended September 30, 2007 and 2006
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
72,887
|
|
|
$
|
106,234
|
|
|
|
45.8
|
%
|
|
$
|
209,542
|
|
|
$
|
251,854
|
|
|
|
20.2
|
%
|
Vcom operating revenues
|
|
|
|
|
|
|
685
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
685
|
|
|
|
100.0
|
%
|
ATM product sales and other revenues
|
|
|
3,478
|
|
|
|
3,668
|
|
|
|
5.5
|
%
|
|
|
9,218
|
|
|
|
9,805
|
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
76,365
|
|
|
$
|
110,587
|
|
|
|
44.8
|
%
|
|
$
|
218,760
|
|
|
$
|
262,344
|
|
|
|
19.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues. For the three month
period ended September 30, 2007, our ATM operating revenues
increased 45.8% when compared with the same period in prior
year. This increase was a result of approximately 55% growth in
ATM operating revenues generated by our international
operations, 50% growth in bank and networking branding revenues
generated by our pre-existing domestic business (i.e., our
domestic portfolio prior to the
7-Eleven ATM
Transaction), and $29.4 million of incremental revenues as
a result of our July 2007 acquisition of the ATM operations
of the 7-Eleven Financial Services Business.
During the three months ended September 30, 2007, our
United States segment experienced a $26.9 million, or
44.2%, increase in ATM operating revenues over the same period
in prior year. This increase was primarily the result of the
incremental revenues earned during the period as a result of our
July 2007 acquisition of the ATM operations of the 7-Eleven
Financial Services Business, which generated $26.4 million
of surcharge and interchange revenues and $3.0 million of
bank and network branding revenues during the third quarter.
Additionally, bank and network branding revenues generated by
our pre-existing domestic operations increased
$2.3 million, or approximately 50%, when compared to the
third quarter of 2006, as a result of additional branding
agreements entered into with financial institutions during the
past twelve months. The incremental ATM-related revenues
resulting from the 7-Eleven ATM Transaction and additional
branding agreements were partially offset by lower revenues from
our pre-existing domestic operations, which experienced a
year-over-year decline in surcharge, interchange, and other
transaction-based revenues primarily as a result of the decrease
in the number of transacting merchant-owned ATMs under contract
by 1,000 ATMs from September 30, 2006 to September 30,
2007. The lower machine count resulted in a decline in ATM
operating revenues from our merchant-owned ATM base by roughly
$3.4 million, or 12.8%,
67
compared to the same period in the prior year. In the future, we
expect that revenues from the additional opportunities afforded
to us as a result of the increase in our Company-owned machine
count, which include bank and networking branding arrangements,
will more than offset the decline in revenues resulting from the
decreased number of merchant-owned machines.
During the three months ended September 30, 2007, our
United Kingdom segment experienced a $5.4 million, or
46.5%, increase in ATM operating revenues over the same period
in 2006. This increase primarily resulted from a 48% increase in
the average number of transacting ATMs compared to the same
period in 2006 due to the deployment of additional ATMs during
the latter half of 2006 and first nine months of 2007. Also
contributing to the increase were favorable foreign currency
exchange rates during the period, which contributed to
approximately 23% of the $5.4 million increase in ATM
operating revenues from our United Kingdom segment over the same
period in 2006. Our Mexico operations further contributed to the
increase in ATM operating revenues for the three months ended
September 30, 2007, as the surcharge and interchange
amounts earned were approximately $1.0 million higher than
the same period in 2006. This increase in revenues was the
result of the additional ATM deployments in 2006 and 2007. We
expect that the ATM operating revenues generated by our
international operations will continue to increase, as we deploy
additional ATMs in the United Kingdom and Mexico. Additionally,
we anticipate that our future ATM operating revenues will
increase as a result of the transaction ramping associated with
our recently-deployed international ATMs, which typically take
up to nine months to reach consistent monthly transaction levels.
For the nine month period ended September 30, 2007, our ATM
operating revenues increased 20.2% when compared with the same
period in prior year. This increase was a result of
approximately 62% growth in ATM operating revenues generated by
our international operations, 81% growth in bank and networking
branding revenues generated by our pre-existing domestic
business, and $29.4 million of incremental revenues as a
result of our July 2007 acquisition of the ATM operations
of the 7-Eleven Financial Services Business.
During the nine months ended September 30, 2007, our United
States segment experienced a $24.0 million, or 13.7%,
increase in ATM operating revenues over the same period in prior
year. In addition to the $29.4 million of incremental
surcharge, interchange, and branding revenues described above as
a result of our acquisition of the ATM operations of the
7-Eleven Financial Services Business in July 2007, our
pre-existing domestic operations generated a $9.0 million,
or 81.3%, increase in bank and network branding revenues when
compared to the same period in 2006. These incremental branding
revenues were a result of additional branding agreements entered
into with financial institutions during the past twelve months.
As was the case during the three months ended September 30,
2007, the overall increase in ATM operating revenues from our
pre-existing domestic operations for the nine months ended
September 30, 2007 were partially offset by lower revenues
associated with our merchant-owned operations as a result of the
decrease in the number of transacting merchant-owned ATMs within
the United States. For the nine months ended September 30,
2007, ATM operating revenues from our merchant-owned base
declined roughly $9.4 million, or 11.6%, compared to the
same period in prior year.
Also contributing to the increase in ATM operating revenues for
the nine months ended September 30, 2007, were higher
surcharge and interchange revenues from our United Kingdom
operations, which increased $16.2 million, or 55.3%,
primarily due to a 39.7% increase in the average number of
transacting ATMs in 2007 when compared to the same period in
2006. Foreign currency exchange rates also favorably impacted
the year-to-date revenues, contributing approximately 24% of the
$16.2 million increase in ATM operating revenues from our
United Kingdom operations. Our Mexico operations further
contributed to
68
the increase in ATM operating revenues, generating
$2.1 million in additional revenues in 2007 compared to the
same period in 2006.
Vcomtm
operating
revenues. Vcomtm
operating revenues generated during the three and nine month
periods ended September 30, 2007 were primarily
attributable to check cashing fees earned by our Advanced
Functionality segment during the period. We are currently
working to restructure the
Vcomtm
Services to improve the underlying financial results of that
portion of the acquired business. In the event we are
unsuccessful in our efforts and our cumulative losses, including
potential termination costs, reach $10.0 million, our
intent is to terminate the
Vcomtm
Services.
ATM product sales and other revenues. ATM
product sales and other revenues for the three and nine month
periods ended September 30, 2007 increased approximately
5.5% and 6.4% when compared to the same period in 2006. Such
increases were primarily due to higher year-over-year
value-added reseller (VAR) program sales and
additional sales of used equipment by our United States segment.
These increases were partially offset by a decline in service
call revenue during the periods, primarily the result of lower
service calls related to Triple-DES upgrades during 2007 when
compared to the same periods in 2006.
Cost of Revenues
and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization, shown separately
below)(1)
|
|
$
|
54,280
|
|
|
$
|
79,966
|
|
|
|
47.3
|
%
|
|
$
|
157,225
|
|
|
$
|
191,046
|
|
|
|
21.5
|
%
|
Cost of Vcom operating revenues
|
|
|
|
|
|
|
2,644
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
2,644
|
|
|
|
100.0
|
%
|
Cost of ATM product sales and other revenues
|
|
|
3,105
|
|
|
|
3,111
|
|
|
|
0.2
|
%
|
|
|
8,142
|
|
|
|
9,196
|
|
|
|
12.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues (exclusive of depreciation, accretion,
and amortization, shown separately
below)(1)
|
|
$
|
57,385
|
|
|
$
|
85,721
|
|
|
|
49.4
|
%
|
|
$
|
165,367
|
|
|
$
|
202,886
|
|
|
|
22.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating gross profit margin (exclusive of depreciation,
accretion, and amortization, shown separately
below)(1)
|
|
|
25.5
|
%
|
|
|
24.7
|
%
|
|
|
|
|
|
|
25.0
|
%
|
|
|
24.1
|
%
|
|
|
|
|
Vcom operating gross profit margin
|
|
|
|
|
|
|
(286.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
(286.0
|
)%
|
|
|
|
|
ATM product sales and other revenues gross profit margin
|
|
|
10.7
|
%
|
|
|
15.2
|
%
|
|
|
|
|
|
|
11.7
|
%
|
|
|
6.2
|
%
|
|
|
|
|
Total gross profit margin (exclusive of depreciation, accretion,
and amortization, shown separately
below)(1)
|
|
|
24.9
|
%
|
|
|
22.5
|
%
|
|
|
|
|
|
|
24.4
|
%
|
|
|
22.7
|
%
|
|
|
|
|
ATM operating gross profit margin (inclusive of depreciation,
accretion, and amortization)
|
|
|
15.8
|
%
|
|
|
10.0
|
%
|
|
|
|
|
|
|
14.2
|
%
|
|
|
11.7
|
%
|
|
|
|
|
Total gross profit margin (inclusive of depreciation, accretion,
and amortization)
|
|
|
15.5
|
%
|
|
|
8.3
|
%
|
|
|
|
|
|
|
14.1
|
%
|
|
|
10.7
|
%
|
|
|
|
|
69
|
|
|
(1)
|
|
Excludes depreciation, accretion,
and amortization expense of $15.7 million and
$7.1 million for the three month periods ended
September 30, 2007 and 2006, respectively, and
$31.3 million and $22.6 million for the nine month
periods ended September 30, 2007 and 2006, respectively.
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization, shown separately
below). For the three month period ended
September 30, 2007, the increase in the cost of ATM
operating revenues was primarily driven by our United States
segment, which experienced a $20.3 million, or 43.6%,
increase in such costs from prior year levels. This increase was
primarily the result of the incremental costs incurred during
the period as a result of our July 2007 acquisition of the
ATM operations of the 7-Eleven Financial Services Business,
which incurred $21.4 million of incremental expenses during
the three months ended September 30, 2007, including
$10.9 million of merchant fees, $4.1 million in vault
cash costs, and $2.3 million of maintenance costs. The
$21.4 million of incremental expenses generated by the ATM
operations of the acquired 7-Eleven Financial Services Business
is net of $1.7 million of amortization expense related to
the deferred liabilities recorded to value certain unfavorable
operating leases and an operating contract assumed as a part of
the 7-Eleven ATM Transaction. For additional details related to
these deferred liabilities, see Note 2 to our unaudited
interim condensed consolidated financial statements included
elsewhere herein.
Also contributing to the increase in the cost of ATM operating
revenues associated with our United States segment were
(i) higher domestic vault cash costs associated with our
pre-existing domestic operations, which increased
$1.4 million, or 30.1%, compared to the same period in 2006
as a result of higher average per-transaction cash withdrawal
amounts (which results in an increase in the level of vault cash
balances necessary to support such transactions) and higher
overall vault cash balances in our bank branded ATMs, and
(ii) $0.6 million in incremental costs associated with
our efforts to convert our ATMs over to our in-house transaction
processing platform. Partially offsetting these increases were
lower merchant fees associated with our pre-existing domestic
operations, which decreased $3.6 million, or 13.2%, when
compared to the same period in 2006. Of this $3.6 million
decline, approximately $3.1 million was the result of the
year-over-year decline in the number of domestic merchant-owned
ATMs and related surcharge revenues.
Our international operations also contributed to the increase in
the cost of ATM operating revenues for the three months ended
September 30, 2007, with our United Kingdom and Mexico
segments costs increasing $4.6 million and
$0.8 million, respectively, over the same period in 2006.
These increases were due to higher merchant payments and
increased vault cash, processing, armored carrier, and
communication costs, which resulted from the increased number of
ATMs operating in the United Kingdom and Mexico during 2007
compared to the same period in 2006. Excluding vault cash costs
and processing fees, the costs listed above are generally fixed
in nature, meaning that an increase in transaction volumes
typically leads to an increase in the profitability of the ATMs.
As a result, while we anticipate that the cost of ATM operating
revenues associated with our United Kingdom operations will
continue to increase in the future as additional ATMs are
deployed, we anticipate that such costs, as a percentage of
revenues, will decrease as the number of transactions conducted
on those ATMs rises. Additionally, the cost of ATM operating
revenues from our United Kingdom operations increased as a
result of foreign currency exchange rates during 2007, which
contributed approximately 19% of the $4.6 million increase
in this segments cost of ATM operating revenues.
For the nine months ended September 30, 2007, the increase
in the cost of ATM operating revenues was also primarily due to
our United States segment, which experienced an
$18.8 million, or 13.7%, increase in such costs from prior
year levels. This increase was primarily the result of the
$21.4 million of incremental costs described above incurred
during the period as a result of our July 2007 acquisition of
the ATM operations of 7-Eleven Financial Services
70
Business. Also contributing to the increase were (i) higher
domestic vault cash costs associated with our pre-existing
domestic operations, which increased $3.7 million, or
26.6%, compared to the same period in 2006 as a result of the
higher average per-transaction cash withdrawal amounts and
higher overall vault cash balances in our bank branded ATMs,
(ii) $1.7 million in incremental costs associated with
our efforts to convert our ATMs to our in-house transaction
processing platform, and (iii) $1.6 million of
additional employee-related costs directly allocable to our
operations incurred in 2007. Partially offsetting these
increases in costs were lower merchant fees associated with our
pre-existing domestic operations, which decreased
$10.1 million, or 12.4%, when compared to the same period
in 2006 due to the year-over-year decline in the number of
domestic merchant-owned ATMs and domestic surcharge revenues.
Approximately $8.3 million of the $10.1 million
decrease in merchant commissions was the result of the
year-over-year decline in the number of domestic merchant-owned
ATMs and related surcharge revenues.
As was the case for the three months ended September 30,
2007, our international operations also contributed to the
increase in the cost of ATM operating revenues for the nine
months ended September 30, 2007, with our United Kingdom
and Mexico segments costs increasing $13.2 million
and $1.8 million, respectively, over the nine months ended
September 30, 2006. As noted above, the increase from our
United Kingdom and Mexico operations were due to the deployment
of additional ATMs during the past year. Also contributing to
the increase in the United Kingdom were higher per ATM
withdrawal transactions and increases in the foreign currency
exchange rates during 2007, which contributed approximately 21%
of the total $13.2 million increase in the United
Kingdoms cost of ATM operating revenues. Finally, the cost
of ATM operating revenues from our United Kingdom operations for
the nine months ended September 30, 2007 was negatively
impacted by approximately $0.4 million in costs related to
certain fraudulent credit card withdrawal transactions conducted
on a number of our ATMs in that market. We incurred such losses
as a result of the delay in certification associated with a
change in our sponsoring bank. As we currently expect the
certification process to be completed in January 2008 and have
taken precautionary measures to prevent further loss in the
interim, we do not anticipate similar losses in future periods.
ATM operating gross profit margin (exclusive of depreciation,
accretion, and amortization). For the three and
nine months periods ended September 30, 2007, gross margin
percentages (exclusive of depreciation, accretion, and
amortization) related to our ATM operating activities decreased
0.8% and 0.9%, respectively, compared to the same periods in
2006. Such declines were primarily the result of
$0.6 million and $1.7 million, respectively, in costs
associated with our efforts to transition our domestic ATMs to
our in-house transaction processing platform. While these costs
are not expected to continue subsequent to the completion of our
conversion efforts, we anticipate that our gross margin
(exclusive of depreciation, accretion, and amortization) will
continue to be negatively impacted by these costs for the
balance of 2007 and the first half of 2008 as we convert the
remainder of our Company-owned and merchant-owned ATMs to our
processing platform. Our margins (exclusive of depreciation,
accretion, and amortization) were further impacted by
approximately $0.1 million and $0.5 million,
respectively, in inventory reserves related to our Triple-DES
upgrade efforts during the three and nine month periods ended
September 30, 2007. While we may have additional
adjustments throughout the remainder of 2007 as we complete our
Triple-DES upgrade efforts, we do not anticipate similar
adjustments in 2008. Finally, our gross margins (exclusive of
depreciation, accretion, and amortization) for the nine month
period ended September 30, 2007, were negatively impacted
by the $0.4 million in costs related to the fraudulent
credit card withdrawal transactions conducted on a number of our
ATMs in the United Kingdom.
ATM operating gross profit margin (inclusive of depreciation,
accretion, and amortization). For the three and
nine month periods ended September 30, 2007, gross margin
percentages (inclusive of depreciation, accretion, and
amortization) related to our ATM operating activities
71
decreased 5.8% and 2.5%, respectively, compared to the same
periods in 2006. Such declines were the result of transition
costs associated with our in-house processing operations, the
inventory reserves related to our Triple-DES upgrade efforts,
and, for the nine months ended September 30, 2007, the
fraudulent credit card withdrawal transactions conducted on a
number of our United Kingdom ATMs, each of which are discussed
in further detail above. Also contributing to the declines in
gross margins (inclusive of depreciation, accretion, and
amortization) were (i) the higher depreciation and
accretion expense associated with recent ATM deployments,
primarily in the United Kingdom and Mexico, which have yet to
achieve the higher consistent recurring transaction levels seen
in our more mature ATMs, (ii) the incremental depreciation
expense recorded as a result of our July 2007 acquisition of the
7-Eleven
Financial Services Business, and (iii) the incremental
amortization expense related to a significant intangible asset
impairment recorded in the third quarter of 2007. See
Depreciation and Accretion Expense and
Amortization Expense below for
additional discussions of the increases in depreciation and
accretion expense and amortization expense, respectively, for
the three and nine month periods ended September 30, 2007
and 2006.
Cost of
Vcomtm
operating revenues. The costs of Vcom operating
revenues generated during the three and nine month periods ended
September 30, 2007 were primarily related to maintenance,
processing, and the provision of vault cash related to the
Vcomtm
Services provided by our Advanced Functionality segment. As
noted above, we are currently working to restructure the
Vcomtm
Services to improve the underlying financial results of that
portion of the acquired business. In the event we are
unsuccessful in our efforts and our cumulative losses reach
$10.0 million, including potential termination costs, our
intent is to terminate the
Vcomtm
Services.
Cost of ATM product sales and other
revenues. The cost of ATM product sales and other
revenues for the three and nine month periods ended
September 30, 2007, increased by approximately 0.2% and
12.9%, respectively, when compared to the same periods in 2006.
Such increases were primarily due to higher year-over-year costs
associated with equipment sold under our VAR program with NCR.
These increases were partially offset by a decline in service
call expense during the periods, primarily resulting from lower
service calls related to Triple-DES upgrades during 2007 as
compared to the same periods in 2006.
ATM product sales and other revenues gross profit
margin. Our ATM product sales and other revenues
gross margins were higher for the three month period ended
September 30, 2007 when compared to the same period in 2006
as a result of increased equipment sales at greater profit
margins during the period. For the nine month period ended
September 30, 2007, ATM product sales and other revenues
gross margins were lower than during the same period in 2006
primarily as a result of our Triple-DES upgrade efforts. Because
all ATMs operating on the EFT networks are required to be
Triple-DES compliant by the end of 2007, we have seen an
increase in the number of ATM sales associated with the
Triple-DES upgrade process. However, in certain circumstances,
we have sold the machines at little or, in some cases, negative
margins in exchange for a long-term renewal of the underlying
ATM operating agreements. As a result, gross margins associated
with our ATM product sales and other activities have been
negatively impacted during the current year. We anticipate that
these margins will improve in 2008 as all ATMs are required to
be compliant with Triple-DES by the end of 2007.
72
Selling, General,
and Administrative Expenses (SG&A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
|
Selling, general and administrative expenses, excluding
stock-based compensation
|
|
$
|
5,571
|
|
|
$
|
7,324
|
|
|
|
31.5
|
%
|
|
$
|
15,109
|
|
|
$
|
20,264
|
|
|
|
34.1
|
%
|
Stock-based compensation
|
|
|
240
|
|
|
|
297
|
|
|
|
23.8
|
%
|
|
|
600
|
|
|
|
721
|
|
|
|
20.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general, and administrative expenses
|
|
$
|
5,811
|
|
|
$
|
7,621
|
|
|
|
31.1
|
%
|
|
$
|
15,709
|
|
|
$
|
20,985
|
|
|
|
33.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
7.3
|
%
|
|
|
6.6
|
%
|
|
|
|
|
|
|
6.9
|
%
|
|
|
7.7
|
%
|
|
|
|
|
Stock-based compensation
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
|
|
|
|
Total selling, general, and administrative expenses
|
|
|
7.6
|
%
|
|
|
6.9
|
%
|
|
|
|
|
|
|
7.2
|
%
|
|
|
8.0
|
%
|
|
|
|
|
Selling, general, and administrative expenses, excluding
stock-based compensation. For the three month
period ended September 30, 2007, our selling, general, and
administrative expenses, excluding stock-based compensation,
increased by $1.8 million, or 31.5%, when compared to the
same period in 2006. Such increase was primarily attributable to
our domestic operations, which experienced an increase of
$1.2 million, or 25.6%, in costs during 2007. Such increase
was primarily due to (i) $0.8 million of higher
employee-related costs incurred to support our growth
initiatives, primarily on the sales and marketing side of our
business, (ii) $0.6 million of professional fees
incurred during the three month period ended September 30,
2007 related to our Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley) compliance efforts, and
(iii) $0.4 million of higher costs as a result of our
July 2007 acquisition of the ATM operations of the 7-Eleven
Financial Services Business, the majority of which were
employee-related. Finally, SG&A related to our United
Kingdom operations increased $0.3 million for the three
months ended September 30, 2007, primarily due to
additional employee-related costs as a result of the hiring of
additional personnel to support the growth of this
segments operations and changes in foreign currency
exchange rates, which contributed to roughly 26% of our United
Kingdom segments total $0.3 million increase in
SG&A expenses over the same period in the prior year.
For the nine month period ended September 30, 2007,
SG&A expenses, excluding stock-based compensation,
increased $5.2 million, or 34.1%, primarily due to costs
associated with our operations in the United States, which
experienced an increase of $3.8 million, or 29.5%, in 2007
when compared to the same period in 2006. This increase was
primarily attributable to a $1.6 million increase in
employee-related costs, primarily on the sales and marketing
side of our business, $1.1 million of additional
professional fees associated with our Sarbanes-Oxley compliance
efforts, and $0.7 million in increased legal costs
associated with our National Federation of the Blind and CGI,
Inc. litigation settlements. Additionally, our United Kingdom
and Mexico operations had higher SG&A expenses for the nine
months ended September 30, 2007, primarily due to
additional employee-related costs to support growth and, in the
case of our United Kingdom operations, changes in foreign
currency exchange rates.
While our SG&A costs are expected to continue to increase
on an absolute basis as a result of our future growth
initiatives and our acquisition of the 7-Eleven Financial
Services Business, we expect that such costs will begin to
decrease as a percentage of our total revenues throughout the
remainder of 2007 and beyond.
73
Depreciation and
Accretion Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Depreciation expense
|
|
$
|
4,583
|
|
|
$
|
6,600
|
|
|
|
44.0
|
%
|
|
$
|
12,888
|
|
|
$
|
17,710
|
|
|
|
37.4
|
%
|
Accretion expense
|
|
|
631
|
|
|
|
361
|
|
|
|
(42.8
|
)%
|
|
|
1,184
|
|
|
|
831
|
|
|
|
(29.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and accretion expense
|
|
$
|
5,214
|
|
|
$
|
6,961
|
|
|
|
33.5
|
%
|
|
$
|
14,072
|
|
|
$
|
18,541
|
|
|
|
31.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
|
|
|
|
5.9
|
%
|
|
|
6.8
|
%
|
|
|
|
|
Accretion expense
|
|
|
0.8
|
%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
0.5
|
%
|
|
|
0.3
|
%
|
|
|
|
|
Total depreciation and accretion
|
|
|
6.8
|
%
|
|
|
6.3
|
%
|
|
|
|
|
|
|
6.4
|
%
|
|
|
7.1
|
%
|
|
|
|
|
Depreciation expense. For the three and nine
month periods ended September 30, 2007, depreciation
expense increased by 44.0% and 37.4%, respectively, when
compared to the same periods in 2006. These increases were
primarily driven by our United Kingdom operations, which
recognized additional depreciation of $0.8 million and
$1.8 million for the three and nine month periods ended
September 30, 2007, respectively, primarily due to the
deployment of additional ATMs under Company-owned arrangements.
Additionally, for the three and nine month periods ended
September 30, 2007, depreciation expense related to our
domestic operations increased by $1.1 million and
$2.8 million, primarily due to $1.1 million in
depreciation related to the ATMs and
Vcomtm
units acquired as part of our July 2007 acquisition of the
7-Eleven Financial Services Business, offset partially by lower
depreciation related to our pre-existing domestic operations.
Accretion expense. We account for our asset
retirement obligations in accordance with
SFAS No. 143, Accounting for Asset Retirement
Obligations, which requires that we estimate the fair value
of future retirement obligations associated with our ATMs,
including the anticipated costs to deinstall, and in some cases
refurbish, certain merchant locations. Accretion expense
represents the increase of this liability from the original
discounted net present value to the amount we ultimately expect
to incur. The decrease in accretion expense for the three and
nine month periods ended September 30, 2007 was the result
of higher retirement obligation estimates in place during 2006.
In the future, we expect that our depreciation and accretion
expense will grow to reflect the increase in the number of ATMs
we own and deploy throughout our Company-owned portfolio. To
that end, our depreciation and accretion expense amount is
expected to increase substantially as a result of the recently
completed 7-Eleven ATM Transaction.
Amortization
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Amortization expense
|
|
$
|
2,263
|
|
|
$
|
9,204
|
|
|
|
306.7
|
%
|
|
$
|
9,610
|
|
|
$
|
14,062
|
|
|
|
46.3
|
%
|
Percentage of revenues
|
|
|
3.0
|
%
|
|
|
8.3
|
%
|
|
|
|
|
|
|
4.4
|
%
|
|
|
5.4
|
%
|
|
|
|
|
For the three months ended September 30, 2007, amortization
expense, which is primarily comprised of amortization of
intangible merchant contracts and relationships associated with
our past acquisitions, increased by $6.9 million, or
306.7%, when compared to the same period in 2006. The increased
amortization expense was primarily due to $5.2 million of
impairment charges recorded during the three month period ended
September 30, 2007. Of this amount, $5.1 million
related to the unamortized intangible asset value associated
with our merchant contract with Target, which we acquired in
2004. As previously disclosed, we have been in
74
discussions with this particular merchant customer 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 progress in this regard during the
quarter ended September 30, 2007, and, based on discussions
that have been held with this merchant, have concluded that the
likelihood of being able to provide such additional services has
decreased considerably. Furthermore, average monthly transaction
volumes associated with this particular contract have continued
to decrease in 2007 when compared to the same period last year.
Accordingly, we concluded that the above impairment charge was
warranted as of September 30, 2007. The impairment charge
recorded served to write-off the remaining unamortized
intangible asset associated with this merchant. We plan to
continue to work with this merchant customer to offer the
additional services noted above, which we believe could
significantly increase the future cash flows earned under this
contract. Absent our ability to do this, we will attempt to
restructure the terms of the existing contract in an effort to
improve the underlying cash flows associated with such contract.
Our acquisition of the 7-Eleven Financial Services Business
further contributed to the increased amortization, as we
recognized $1.6 million in incremental amortization expense
during the three months ended September 30, 2007 associated
with the intangible assets recorded as a part of our purchase
price allocation. Excluding the asset impairments and
incremental amortization expense recorded as a result of the
7-Eleven ATM Transaction, amortization expense for the three
month period ended September 30, 2007 was relatively flat
compared to the same period in 2006.
For the nine month period ended September 30, 2007, the
$4.5 million increase in amortization expense was due to
$5.3 million in impairment charges related to previously
acquired merchant contracts ($5.1 million of which has been
discussed above), and the $1.6 million in incremental
amortization expense related to the 7-Eleven ATM Transaction.
These amounts were partially offset by a $2.8 million
impairment charge recorded during the first quarter of 2006
related to the BAS Communications, Inc. ATM portfolio. Excluding
the impairments taken in 2007 and 2006 and the incremental
amortization related to the intangible assets acquired in the
7-Eleven ATM Transaction, amortization expense for the nine
month period ended September 30, 2007 was slightly higher
than the same period in 2006, primarily as a result of increased
amortization expense associated with our United Kingdom
operations related to additional contract-based intangible
assets, which are being amortized over the lives of the
underlying contracts.
We expect that our future amortization expense amounts will be
substantially higher than those historically reflected, as the
$78.0 million of amortizable intangible assets acquired in
the 7-Eleven ATM Transaction are amortized over the remaining
terms of the underlying contracts at a rate of approximately
$8.1 million per year.
Interest Expense,
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Interest expense, net
|
|
$
|
5,871
|
|
|
$
|
8,545
|
|
|
|
45.5
|
%
|
|
$
|
17,193
|
|
|
$
|
20,437
|
|
|
|
18.9
|
%
|
Amortization and write-off of financing costs and bond discount
|
|
|
362
|
|
|
|
439
|
|
|
|
21.3
|
%
|
|
|
1,576
|
|
|
|
1,155
|
|
|
|
(26.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
$
|
6,233
|
|
|
$
|
8,984
|
|
|
|
44.1
|
%
|
|
$
|
18,769
|
|
|
$
|
21,592
|
|
|
|
15.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenues
|
|
|
8.2
|
%
|
|
|
8.1
|
%
|
|
|
|
|
|
|
8.6
|
%
|
|
|
8.2
|
%
|
|
|
|
|
Interest expense, net. For the three and nine
month periods ended September 30, 2007, interest expense,
excluding the amortization and write-off of financing costs and
bond
75
discount, increased by 45.5% and 18.9%, respectively, when
compared to the same periods in 2006. The majority of these
increases were due to our issuance of the $100.0 million in
Series B Notes in July 2007 to partially finance the
7-Eleven ATM Transaction. This issuance resulted in
$1.8 million of additional interest expense for the three
months ended September 30, 2007, excluding the amortization
of the related discount and deferred financing costs. Further
contributing to the year-over-year increases were higher average
outstanding balances under our revolving credit facility during
2007 when compared to the same periods in 2006. Such incremental
borrowings were utilized to fund the remaining portion of the
acquisition costs associated with the 7-Eleven ATM Transaction
as well as to fund certain working capital needs. Also
contributing to the year-over-year increases in interest expense
was the overall increase in the level of floating interest rates
paid under our revolving credit facility.
In May 2007, we amended our revolving credit facility to, among
other things, provide for a reduced spread on the interest rate
charged on amounts outstanding under the facility and to
increase the amount of capital expenditures that we can incur on
an annual basis. Although the interest spread modification will
serve to reduce slightly the amount of interest charged on
amounts outstanding under the facility, we expect that our
overall interest expense amounts will increase substantially for
the remainder of the year over prior year levels. Such increase
is expected due to (i) the issuance of the Series B
Notes, which will result in an additional $9.3 million in
interest expense on an annual basis, excluding the amortization
of the related discount and deferred financing costs,
(ii) the additional $43.0 million in borrowings made
under our revolving credit facility in July 2007 to finance the
remaining portion of the 7-Eleven ATM Transaction, and
(iii) additional borrowings expected to be made under our
revolving credit facility to help fund our anticipated capital
expenditure needs during the remainder of the year. For
additional information on our financing facilities and
anticipated capital expenditure needs, see Liquidity and
Capital Resources below.
Amortization and write-off of financing costs and bond
discounts. For the three month period ended
September 30, 2007, expenses related to the amortization
and write-off of financing costs and bond discounts increased
$0.1 million as a result of the additional financing costs
incurred in connection with the Series B Notes and
amendments made to our revolving credit facility in July 2007 as
part of the 7-Eleven ATM Transaction. For the nine month period
ended September 30, 2007, expenses related to the
amortization and write-off of financing costs and bond discounts
decreased $0.4 million compared to the same period in 2006,
primarily due to the write-off of approximately
$0.5 million of deferred financing costs in the first
quarter of 2006 as a result of an amendment made to our bank
credit facility in February 2006. This write-off was partially
offset by the increased expenses associated with our July 2007
issuance of the Series B Notes and the July 2007 amendment
to our revolving credit facility. No deferred financing costs
were written off in 2007.
Other Expense
(Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Minority interest
|
|
$
|
(71
|
)
|
|
$
|
(174
|
)
|
|
|
145.1
|
%
|
|
$
|
(128
|
)
|
|
$
|
(286
|
)
|
|
|
123.4
|
%
|
Other expense (income)
|
|
|
(83
|
)
|
|
|
678
|
|
|
|
(916.9
|
)%
|
|
|
(740
|
)
|
|
|
1,037
|
|
|
|
(240.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense (income)
|
|
$
|
(154
|
)
|
|
$
|
504
|
|
|
|
(427.3
|
)%
|
|
$
|
(868
|
)
|
|
$
|
751
|
|
|
|
(186.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenues
|
|
|
(0.2
|
)%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
(0.4
|
)%
|
|
|
0.3
|
%
|
|
|
|
|
For the three and nine month periods ended September 30,
2007, total other expense consisted primarily of
$0.6 million and $1.5 million, respectively, in losses
on the disposal of fixed assets. Such losses were incurred in
conjunction with the deinstallation and subsequent
76
sale of used ATMs during the period. For the nine months ended
September 30, 2007, such losses were partially offset by
$0.6 million in gains on the sale of equity securities
awarded to us pursuant to the bankruptcy plan of reorganization
of Winn-Dixie Stores, Inc., one of our merchant customers. Total
other income for the three and nine months ended
September 30, 2006 consisted primarily of a
$1.1 million contract termination payment received in May
2006 related to a portion of the installed ATM base that was
deinstalled prior to the scheduled contract termination date and
a $0.5 million payment received in August 2006 from one of
our customers related to the sale of a number of its stores to
another party. These payments were partially offset by losses
associated with the disposal of ATMs during those periods.
Income Tax
Provision (Benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
2006
|
|
|
2007
|
|
|
% Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
(60
|
)
|
|
$
|
2,275
|
|
|
|
(3,891.7
|
)%
|
|
$
|
(1,217
|
)
|
|
$
|
3,212
|
|
|
|
(363.9
|
)%
|
Effective tax rate
|
|
|
15.5
|
%
|
|
|
(27.1
|
)%
|
|
|
|
|
|
|
31.2
|
%
|
|
|
(19.5
|
)%
|
|
|
|
|
As indicated in the table above, our income tax provision
increased by $2.3 million and $4.4 million for the
three and nine month periods ended September 30, 2007,
respectively, when compared to the same periods in 2006. The
increases for the three and nine month periods were primarily
driven by the establishment of valuation allowances of
$2.5 million and $3.4 million, respectively. Such
valuation allowances, which represent the total estimated net
deferred tax asset balance associated with our domestic
operations as of September 30, 2007, were established
during 2007 due to uncertainties surrounding our ability to
utilize the related tax benefits in future periods. Such
decision was based, in part, on our forecasted domestic pre-tax
book and tax loss figures through the remainder of 2007 from
pre-existing operations and as a result of the additional
interest expense associated with the 7-Eleven ATM Transaction
and the anticipated losses associated with the acquired
Vcomtm
operations. Under applicable accounting guidelines, three or
more consecutive years of pre-tax book losses typically requires
the establishment of a valuation allowance. Accordingly, given
the estimated increase in pre-tax book losses resulting from the
7-Eleven ATM Transaction, we determined that such valuation
allowance was warranted. Furthermore, we do not expect to record
any additional domestic federal or state income tax benefits in
our financial statements until it is more likely than not that
such benefits will be utilized. Accordingly, as long as we
continue to generate pre-tax book losses from our domestic
operations, our future effective tax rates are expected to be
lower than the statutory rate, on average, than in historical
periods.
In addition to the income tax provisions discussed above, the
Company recorded a $0.2 million deferred tax benefit during
the three month period ended September 30, 2007 related to
a reduction in the United Kingdom corporate statutory income tax
rate from 30% to 28%. Such rate reduction, which will become
effective in 2008, was formally enacted in July 2007.
77
Years Ended
December 31, 2006, December 31, 2005, and
December 31, 2004
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
2004 to
|
|
|
|
|
|
2005 to
|
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
(in thousands, excluding percentages)
|
|
|
ATM operating revenues
|
|
$
|
182,711
|
|
|
$
|
258,979
|
|
|
|
41.7
|
%
|
|
$
|
280,985
|
|
|
|
8.5
|
%
|
ATM product sales and other revenues
|
|
|
10,204
|
|
|
|
9,986
|
|
|
|
(2.1
|
)%
|
|
|
12,620
|
|
|
|
26.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
192,915
|
|
|
$
|
268,965
|
|
|
|
39.4
|
%
|
|
$
|
293,605
|
|
|
|
9.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues. The 8.5% increase in
ATM operating revenues for the year ended December 31, 2006
was primarily attributable to revenues from our United Kingdom
operations, which increased by $20.4 million, or 94.3%,
from prior year levels. This increase was primarily due to the
fact that results for the year ended December 31, 2005,
only reflect eight months worth of operating results from
the acquired Bank Machine operations. Also contributing to the
United Kingdom increase were higher surcharge and interchange
revenues resulting from the deployment of approximately 300
additional ATMs during the past year and higher per ATM
withdrawal transactions, which increased 17.6% over prior year.
Our domestic operations also contributed to the increase in ATM
operating revenues in 2006 as higher bank and network branding
revenues more than offset the declines in surcharge and
interchange revenues that resulted from a decrease in the number
of merchant-owned ATMs under contract.
For the year ended December 31, 2005, ATM operating
revenues increased 41.7% over the year ended December 31,
2004, primarily due to higher ATM transaction volumes.
Specifically, withdrawal transactions increased approximately
37.1% to 119.0 million transactions for the year ended
December 31, 2005, from 86.8 million during the same
period in 2004. This growth in transaction volume was driven
largely by the E*TRADE Access ATM portfolio acquisition, which
was only included in the 2004 results for the last six months of
that year, as well as the three acquisitions consummated in
2005, including the Bank Machine acquisition in May 2005.
Additionally, higher overall bank and network branding revenues
contributed to the year-over-year increase.
ATM product sales and other revenues. ATM
product sales and other revenues for 2006 increased
approximately 26.4% from prior year levels. Such increase was
primarily due to higher service call income resulting from
Triple-DES security upgrades performed in the United States,
higher year-over-year equipment and value-added reseller program
sales, and higher non-transaction based fees associated with our
domestic network branding program.
In 2005, ATM product sales and other revenues decreased
approximately 2.1% when compared to 2004. This decrease was
primarily due to lower overall sales of equipment under our VAR
program as a result of a large sale in 2004 that did not repeat
in 2005. However, such decrease was partially offset by higher
ATM product sales to our merchant-owned customers and slightly
higher ATM service revenues.
78
Cost of Revenues
and Gross Profit Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
2004 to
|
|
|
|
|
|
2005 to
|
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
(in thousands, excluding percentages)
|
|
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization, shown separately
below)(1)
|
|
$
|
143,504
|
|
|
$
|
199,767
|
|
|
|
39.2
|
%
|
|
$
|
209,850
|
|
|
|
5.0
|
%
|
Cost of ATM product sales and other revenues
|
|
|
8,703
|
|
|
|
9,681
|
|
|
|
11.2
|
%
|
|
|
11,443
|
|
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues (exclusive of depreciation, accretion,
and amortization, shown separately
below)(1)
|
|
$
|
152,207
|
|
|
$
|
209,448
|
|
|
|
37.6
|
%
|
|
$
|
221,293
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating gross profit margin (exclusive of depreciation,
accretion, and amortization, shown separately
below)(1)
|
|
|
21.4
|
%
|
|
|
22.9
|
%
|
|
|
|
|
|
|
25.3
|
%
|
|
|
|
|
ATM product sales and other revenues gross profit margin
|
|
|
14.7
|
%
|
|
|
3.1
|
%
|
|
|
|
|
|
|
9.3
|
%
|
|
|
|
|
Total gross profit margin (exclusive of depreciation, accretion,
and amortization, shown separately
below)(1)
|
|
|
21.1
|
%
|
|
|
22.1
|
%
|
|
|
|
|
|
|
24.6
|
%
|
|
|
|
|
ATM operating gross profit margin (inclusive of depreciation,
accretion, and amortization)
|
|
|
15.2
|
%
|
|
|
14.9
|
%
|
|
|
|
|
|
|
14.9
|
%
|
|
|
|
|
Total gross profit margin (inclusive of depreciation, accretion,
and amortization)
|
|
|
15.2
|
%
|
|
|
14.5
|
%
|
|
|
|
|
|
|
14.7
|
%
|
|
|
|
|
|
|
|
(1) |
|
Excludes depreciation, accretion,
and amortization expense of $11.4 million,
$20.6 million, and $29.2 million for the years ended
December 31, 2004, 2005, and 2006, respectively.
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization shown separately
below). The slight increase in cost of ATM
operating revenues for 2006 was driven by our United Kingdom
operations, which experienced a $12.9 million, or 91.1%,
increase in such costs from prior year levels. This increase was
primarily due to the fact that the 2005 results reflect only
eight months worth of operating results from the acquired
Bank Machine operations, as previously noted. However, also
contributing to the increase were higher merchant payments and
increased ATM cash costs, which were a result of the
aforementioned increased number of ATM merchant locations in the
United Kingdom. In the United States, the cost of ATM operating
revenues for 2006 declined by $3.4 million, or 1.8%, when
compared to 2005. Such decline was primarily due to lower
merchant fees, resulting from the aforementioned year-over-year
decline in domestic surcharge revenues, which is a direct result
of the lower number of merchant-owned accounts.
In 2005, the 39.2% increase in cost of ATM operating revenues
over the prior year was primarily due to the higher overall cost
of ATM operating revenues as a result of the E*TRADE Access ATM
portfolio acquisition in June 2004 and, to a lesser extent, the
three acquisitions consummated in 2005. Because the majority of
the ATMs acquired in the E*TRADE Access ATM portfolio
acquisition were merchant-owned machines, the related merchant
fees are higher than those paid under Company-owned
arrangements. Overall, merchant fees increased by approximately
$31.8 million, or 39.3%, during 2005 when compared to 2004,
of which approximately $30.0 million was related to our
domestic operations. The other primary components of cost of ATM
operating revenuesmaintenance fees, cost of cash, and
armored courier feesalso contributed to the domestic cost
increases in 2005. Such costs increased by $19.1 million,
or 48.1% in 2005 when compared to 2004, with such increase being
driven primarily by an increase in our overall number of ATMs,
as a result of the aforementioned acquisitions, and higher cash
rental fees due to higher domestic interest rates.
79
Total gross profit margin (exclusive of depreciation,
accretion, and amortization, shown separately
below). The total gross profit margin (exclusive
of depreciation, accretion, and amortization) earned for 2006
was 24.6%, representing an 11.3% increase over the 22.1% gross
profit margin (exclusive of depreciation, accretion, and
amortization) earned in 2005. Such increase was primarily due to
a greater percentage of our gross profit being generated by our
United Kingdom operations, which typically earn higher overall
ATM operating margins than our domestic ATM operations.
Additionally, our year-to-date results in 2006 reflect a full
years worth of operating results from our United Kingdom
operations compared to only eight months of operating results
reflected in 2005. Furthermore, the year-over-year increase in
bank and network branding revenues in the United States also
contributed to the higher gross profit margin figure in 2006.
Finally, our ATM product sales and other gross profit margins
were higher year-over-year due to certain non-transaction based
services that are now being provided as part of our network
branding operations as well as higher equipment and VAR program
sales.
Our total gross profit margin for 2005 totaled 22.1%, up
slightly from the 21.1% level achieved during 2004. Such
increase was primarily attributable to higher than normal
operating costs incurred during the last six months of 2004 as
we worked to transition the acquired E*TRADE Access ATM
portfolio on to our existing operating platform. Additionally,
the 2005 results benefited from the impact of the Bank Machine
acquisition, as our United Kingdom operations generate, on
average, higher overall gross margins than our operations in the
United States.
Total gross profit margin (inclusive of depreciation,
accretion, and amortization). The total gross
profit margin (inclusive of depreciation, accretion, and
amortization) earned for 2006 was 14.7%, representing a 1.4%
increase in over the 14.5% total gross profit margin (inclusive
of depreciation, accretion, and amortization) earned for 2005.
Consistent with the increase in our total gross profit margin
(exclusive of depreciation, accretion, and amortization)
discussed above, this increase was primarily due to a greater
percentage of our gross profits being generated by our United
Kingdom operations, which typically have higher ATM operating
gross profit margins, and the year-over-year increase in bank
and network branding revenues from our domestic operations.
These increases were partially offset by higher depreciation and
accretion expense associated with the increased number of ATMs
deployed by our United States and United Kingdom operations and
additional amortization expense, primarily attributable to an
impairment recorded in the first quarter of 2006 related to a
previously-acquired ATM portfolio. See
Depreciation and Accretion Expense and
Amortization Expense below for
additional discussions of the increases in depreciation and
accretion expense and amortization expense, respectively, for
the years ended December 31, 2006, 2005, and 2004.
Our total gross profit margin (inclusive of depreciation,
accretion, and amortization) for 2005 totaled 14.5%,
representing a 4.6% decline from the 15.2% total gross profit
margin (inclusive of depreciation, accretion, and amortization)
earned for 2004. This decline was primarily the result of the
higher costs of ATM operating revenues in 2005, including higher
merchant fees that resulted from the E*TRADE Access ATM
portfolio acquisition in 2004 and higher maintenance fees, costs
of cash, and armored courier fees attributable to an increase in
our overall number of ATMs due to our acquisitions in 2004 and
2005. Also contributing to the decline in total gross profit
margin (inclusive of depreciation, accretion, and amortization)
during 2005 were the 90.9% increase in depreciation and
accretion expense, which resulted primarily from the increase in
the number of ATMs deployed under Company-owned arrangements in
our United States and United Kingdom operations, and the 63.0%
increase in amortization expense during 2005 compared to 2004,
which resulted primarily from the additional amortization of
intangible merchant contracts and relationships associated with
our past acquisitions. See Depreciation and
Accretion Expense and Amortization
Expense below for additional discussions of the increases
in depreciation and accretion
80
expense and amortization expense, respectively, for the years
ended December 31, 2006, 2005, and 2004.
Selling, General,
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2004
|
|
|
2005
|
|
|
2004 to 2005
|
|
|
2006
|
|
|
2005 to 2006
|
|
|
|
(in thousands, excluding percentages)
|
|
|
Stock-based compensation
|
|
$
|
956
|
|
|
$
|
2,201
|
|
|
|
130.2
|
%
|
|
$
|
828
|
|
|
|
(62.4
|
)%
|
Other selling, general, and administrative expenses
|
|
|
12,615
|
|
|
|
15,664
|
|
|
|
24.2
|
%
|
|
|
20,839
|
|
|
|
33.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general, and administrative expenses
|
|
$
|
13,571
|
|
|
$
|
17,865
|
|
|
|
31.6
|
%
|
|
$
|
21,667
|
|
|
|
21.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
0.5
|
%
|
|
|
0.8
|
%
|
|
|
|
|
|
|
0.3
|
%
|
|
|
|
|
Other selling, general, and administrative expenses
|
|
|
6.5
|
%
|
|
|
5.8
|
%
|
|
|
|
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general, and administrative expenses
|
|
|
7.0
|
%
|
|
|
6.6
|
%
|
|
|
|
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other selling, general, and administrative
expenses. For 2006, our selling, general, and
administrative expenses, excluding stock-based compensation,
increased by 33.0% when compared to the same period in 2005.
Such increase was attributable to higher costs associated with
our domestic operations, which increased $3.7 million, or
27.6%, primarily due to higher employee-related costs as well as
higher accounting, legal, and professional fees resulting from
our past growth. In the United Kingdom, SG&A costs
increased $0.9 million when compared to the prior year due
to the fact that the 2005 results included only eight months of
operating results from Bank Machine. However, such increases
were somewhat offset by certain cost savings measures that were
implemented subsequent to the May 2005 acquisition date.
Finally, our Mexico operations, which were acquired in February
2006, contributed approximately $0.6 million to the
year-over-year variance.
For 2005, selling, general, and administrative expenses,
excluding stock-based compensation, increased by 24.2% when
compared to 2004. Such increase was primarily due to the hiring
of additional employees in 2005 and higher overall professional
fees, both of which were the result of our recent acquisitions
and the additional ATM deployments made in 2005.
We expect that our SG&A expenses will increase in 2007 due
to the anticipated hiring of additional personnel and the
incurrence of additional costs to support our future growth
initiatives and reporting and compliance obligations.
Stock-based compensation. Stock-based
compensation for the year ended December 31, 2006,
decreased by 62.4% when compared to the same period in 2005.
Such decrease was primarily due to an additional
$1.7 million in stock-based compensation recognized during
the 2005 period related to the repurchase of shares underlying
certain employee stock options in connection with our
Series B preferred stock financing transaction.
Additionally, during the year ended December 31, 2006, we
adopted SFAS No. 123 (revised 2004), Share-Based
Payment, (SFAS No. 123R), which
requires us to record the grant date fair value of stock-based
compensation arrangements as compensation expense on a
straight-line basis over the underlying service period of the
related award. During 2006, we recognized approximately
$0.6 million of stock-based compensation expense related to
options granted during the year.
The 130.2% increase in stock-based compensation expense in 2005
compared to 2004 was primarily due to the aforementioned
$1.7 million of additional expense recognized in 2005 in
81
conjunction with the Series B Convertible Preferred Stock
financing transaction. This $1.7 million was partially
offset by otherwise lower stock-based compensation expense in
2005 as a result of the graded-basis vesting of the restricted
stock grant made to our Chief Executive Officer in 2003. See
Note 3 in the notes to our consolidated financial
statements included elsewhere herein for additional information
regarding our stock-based compensation, including our initial
adoption of SFAS No. 123R.
Depreciation and
Accretion Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2004
|
|
|
2005
|
|
|
2004 to 2005
|
|
|
2006
|
|
|
2005 to 2006
|
|
|
|
(in thousands, excluding percentages)
|
|
|
Depreciation expense
|
|
$
|
6,506
|
|
|
$
|
11,949
|
|
|
|
83.7
|
%
|
|
$
|
18,323
|
|
|
|
53.3
|
%
|
Accretion expense
|
|
|
279
|
|
|
|
1,002
|
|
|
|
259.1
|
%
|
|
|
272
|
|
|
|
(72.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and accretion
|
|
$
|
6,785
|
|
|
$
|
12,951
|
|
|
|
90.9
|
%
|
|
$
|
18,595
|
|
|
|
43.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
3.4
|
%
|
|
|
4.4
|
%
|
|
|
|
|
|
|
6.2
|
%
|
|
|
|
|
Accretion expense
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and accretion expense
|
|
|
3.5
|
%
|
|
|
4.8
|
%
|
|
|
|
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense. The 53.3% increase in
depreciation in 2006 was primarily comprised of a
$4.1 million, or 41.1%, increase related to our United
States operations and a $2.3 million, or 112.3%, increase
in our United Kingdom operations. The increase in the United
States was primarily due to the deployment of additional ATMs
under Company-owned arrangements during the latter part of 2005
and throughout 2006, the majority of which were associated with
our bank branding efforts. Additionally, the results for our
U.S. operations reflected the acceleration of depreciation
for certain ATMs that were deinstalled early as a result of
contract terminations and certain ATMs that are expected to be
replaced sooner than originally anticipated as part of our
Triple-DES security upgrade process. The year-over-year increase
in the United Kingdom was driven by the 300 additional ATM
deployments and the fact that the 2005 results only reflect
eight months worth of results from the acquired Bank
Machine operations.
Depreciation expense increased by 83.7% for the year ended
December 31, 2005 when compared to 2004. Such increase was
primarily due to the incremental ATMs acquired through the
E*TRADE Access transaction in June 2004, and, to a lesser
extent, the incremental ATMs associated with the acquisitions
consummated in 2005.
Accretion expense. As previously noted, we
account for our asset retirement obligations in accordance with
SFAS No. 143, Accounting for Asset Retirement
Obligations. Accretion expense represents the increase of
the estimated liability under SFAS No. 143 from the
original discounted net present value to the amount we
ultimately expect to incur. The $0.7 million decrease in
accretion expense in 2006 when compared to 2005 and the
$0.7 million increase in accretion expense in 2005 when
compared to 2004 was primarily the result of $0.5 million
of excess accretion expense that was erroneously recorded in
2005. This amount was subsequently reversed in 2006, at which
time we determined that the impact of recording the
$0.5 million out-of-period adjustment in 2006 (as opposed
to reducing the reported 2005 accretion expense amount) was
immaterial to both reporting periods pursuant to the provisions
contained in SEC Staff Accounting Bulletin (SAB)
No. 99, Materiality, and SAB No. 108,
Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements.
In forming this opinion, we considered the nature of the
82
adjustment (cash versus non-cash) and the relative size of the
adjustment to certain financial statement line items, including
revenues, gross profits, and pre-tax income (or loss) amounts
for each period, including the interim periods contained within
both years. Furthermore, we considered the impact of recording
this adjustment in 2006 on our previously reported earnings and
losses for such periods and concluded that such adjustment did
not impact the trend of our previously reported earnings and
losses.
Excluding the $0.5 million adjustment (discussed above),
accretion expense in 2006 increased when compared to 2005, which
primarily resulted from the 300 additional ATMs deployed in the
United Kingdom. Furthermore, excluding the $0.5 million of
additional accretion expense in 2005, accretion expense in 2005
increased when compared to 2004 as a result of the increase in
our installed ATM base.
In the future, we expect that our depreciation and accretion
expense will grow in proportion to the increase in the number of
ATMs we own and deploy throughout our company-owned portfolio.
See Liquidity and Capital Resources below for
additional information on our capital expenditures program.
Amortization
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2004
|
|
|
2005
|
|
|
2004 to 2005
|
|
|
2006
|
|
|
2005 to 2006
|
|
|
|
(in thousands, excluding percentages)
|
|
|
Amortization
|
|
$
|
5,508
|
|
|
$
|
8,980
|
|
|
|
63.0
|
%
|
|
$
|
11,983
|
|
|
|
33.4
|
%
|
Percentages of revenues
|
|
|
2.9
|
%
|
|
|
3.3
|
%
|
|
|
|
|
|
|
4.1
|
%
|
|
|
|
|
As indicated in the table above, amortization expense, which is
primarily comprised of amortization of intangible merchant
contracts and relationships associated with our past
acquisitions, increased by 33.4% for 2006 when compared to 2005.
Such increase was primarily driven by a $2.8 million
impairment charge recorded during the first quarter of 2006
related to the BAS Communications, Inc. (BASC) ATM
portfolio, which resulted from a reduction in anticipated future
cash flows resulting primarily from a higher than planned
attrition rate associated with this acquired portfolio. Also
contributing to the increase in 2006 was the fact that the 2005
amount only reflects eight months worth of amortization
expense from the Bank Machine acquisition, and only seven and
five months worth of amortization expense, respectively,
related to the BASC and Neo Concepts, Inc. acquisitions.
For the year ended December 31, 2005, amortization expense
increased by 63.0% for the year when compared to 2004. Such
increase was primarily due to the incremental amortization
expense associated with the merchant contracts and relationships
acquired in the E*TRADE Access transaction in June 2004 and, to
a lesser extent, the incremental merchant contracts and
relationships acquired in 2005. Additionally, we recorded a
$1.2 million impairment charge in 2005 related to certain
previously acquired merchant contract/relationship intangible
assets.
83
Interest Expense,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2004
|
|
|
2005
|
|
|
2004 to 2005
|
|
|
2006
|
|
|
2005 to 2006
|
|
|
|
(in thousands, excluding percentages)
|
|
|
Interest expense, net
|
|
$
|
4,155
|
|
|
$
|
15,485
|
|
|
|
272.6
|
%
|
|
$
|
23,143
|
|
|
|
49.5
|
%
|
Amortization and write-off of financing costs and bond discount
|
|
|
1,080
|
|
|
|
6,941
|
|
|
|
542.7
|
%
|
|
|
1,929
|
|
|
|
(72.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
$
|
5,235
|
|
|
$
|
22,426
|
|
|
|
328.4
|
%
|
|
$
|
25,072
|
|
|
|
11.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages of revenues
|
|
|
2.7
|
%
|
|
|
8.4
|
%
|
|
|
|
|
|
|
8.5
|
%
|
|
|
|
|
Interest expense, net. As indicated in the
table above, interest expense, excluding the amortization and
write-off of financing costs and bond discount, increased by
49.5% in 2006 when compared to 2005. Such increase was due to
(i) the additional borrowings made under our bank credit
facilities in May 2005 to finance the Bank Machine acquisition,
and (ii) the incremental interest expense associated with
our $200.0 million senior subordinated notes offering
completed in August 2005. Further contributing to the increase
in interest expense in 2006 was the increase in the annual
interest rate on the senior subordinated notes from 9.25% to
9.50% in June 2006, and from 9.50% to 9.75% in September 2006,
before reverting back to the stated rate of 9.25% in October
2006 upon the successful completion of our exchange offer. Such
increases occurred as a result of our inability to register our
senior subordinated notes with the SEC and complete the related
exchange offer within 300 days from their original
issuance. We completed the exchange offer in October 2006.
Finally, the increase in interest expense for 2006 was also
impacted by an overall increase in the floating interest rates
paid under our revolving credit facility.
For the year ended December 31, 2005, interest expense,
excluding the amortization and write-off of financing costs and
bond discount, increased 272.6% when compared to 2004. Such
increase was primarily attributable to the additional borrowings
made under our bank credit facilities in June 2004 and May 2005
to finance the E*TRADE Access ATM portfolio acquisition and the
Bank Machine acquisition, respectively, and the incremental
interest expense associated with our senior subordinated notes
offering in August 2005. Additionally, higher overall short-term
interest rates in 2005 contributed to the year-over-year
increase.
Amortization and write-off of financing costs and bond
discount. For 2006, the amortization and
write-off of financing costs and bond discount decreased 72.2%
when compared to 2005. The increased expenses for 2005 were due
to the write-off of approximately $5.0 million of deferred
financing costs as a result of amendments to our bank credit
facility in May 2005 and the repayment of our term loans in
August 2005. During 2006, we wrote-off approximately
$0.5 million in deferred financing costs in connection with
certain modifications made to our existing revolving credit
facilities in February 2006. In 2004, we expensed approximately
$0.1 million related to certain fees paid in connection
with the amendment of our then existing bank credit facility.
84
Other Expense
(Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2004
|
|
|
2005
|
|
|
2004 to 2005
|
|
|
2006
|
|
|
2005 to 2006
|
|
|
|
(in thousands, excluding percentages)
|
|
|
Minority interest
|
|
$
|
19
|
|
|
$
|
15
|
|
|
|
(21.1
|
)%
|
|
$
|
(225
|
)
|
|
|
(1,600.0
|
)%
|
Other expense (income)
|
|
|
209
|
|
|
|
968
|
|
|
|
363.2
|
%
|
|
|
(4,761
|
)
|
|
|
(591.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense (income)
|
|
$
|
228
|
|
|
$
|
983
|
|
|
|
331.1
|
%
|
|
$
|
(4,986
|
)
|
|
|
(607.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages of revenues
|
|
|
0.1
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
(1.7
|
)%
|
|
|
|
|
As indicated in the table above, we recorded approximately
$4.8 million in other income for the period ended
December 31, 2006, compared to $1.0 million of other
expense in 2005. The income amount recognized in 2006 is
primarily attributable to the recognition of $4.8 million
($3.0 million after-tax) in other income primarily related
to settlement proceeds received from Winn-Dixie as part of that
companys successful emergence from bankruptcy. Also
contributing to the increase in 2006 was a $1.1 million
contract termination payment that was received from one of our
customers in May 2006 and a $0.5 million payment received
in August 2006 from one of our customers related to the sale of
a number of its stores to another party. As previously noted, we
do not believe that the termination of these contracts will have
a material adverse impact on our results of operations,
financial condition or liquidity. The above amounts were
partially offset by $1.6 million of losses related to the
disposal of a number of ATMs. See Note 5 in the notes to
our consolidated financial statements included elsewhere
herein, for additional details of the Winn-Dixie
bankruptcy settlement.
Income Tax
Provision (Benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2004
|
|
|
2005
|
|
|
2004 to 2005
|
|
|
2006
|
|
|
2005 to 2006
|
|
|
|
(in thousands, excluding percentages)
|
|
|
Income tax provision (benefit)
|
|
$
|
3,576
|
|
|
$
|
(1,270
|
)
|
|
|
(135.5
|
)%
|
|
$
|
512
|
|
|
|
140.3
|
%
|
Effective tax rate
|
|
|
38.1
|
%
|
|
|
34.4
|
%
|
|
|
|
|
|
|
(2,694.7
|
)%
|
|
|
|
|
As indicated in the table above, we had income tax expense of
$0.5 million and $3.6 million in 2006 and 2004,
respectively, and an income tax benefit of $1.3 million in
2005. In 2006, our effective tax rate was unusually high due to
our consolidated breakeven results, certain non-deductible
expenses, a contingent tax liability that was recorded in 2006
related to our United Kingdom operations, and the fact that we
are providing a full valuation allowance on all tax benefits
associated with our Mexico operations. In 2005, our effective
tax rate was lower when compared to 2004 primarily due to a
change in our effective state income tax rate in 2005 and the
results of our United Kingdom operations, which are taxed at a
lower statutory rate. As long as our consolidated financial
results remain at or near breakeven levels, our effective tax
rate will likely continue to vary considerably from quarter to
quarter depending on the mix of pre-tax income and loss amounts
generated in our domestic and foreign tax jurisdictions.
As of December 31, 2006, we had currently concluded that it
is more likely than not that the deferred tax assets associated
with our United States and United Kingdom operations were fully
recoverable. Accordingly, no valuation allowance had been
established for those operations. In Mexico, we had fully
reserved for the net deferred tax assets associated with those
operations due to their uncertain future utilization. During the
nine months ended September 30, 2007, we recorded a
$3.4 million valuation allowance to reserve for the
estimated net deferred tax asset balance associated with our
domestic operations. This allowance was established, in part, as
a result of our expectation of increased pre-tax losses through
the remainder of 2007. As a result of this allowance, we are
fully reserved for the net deferred tax
85
assets associated with our United States and Mexico operations.
If our conclusion regarding the recoverability of the deferred
tax assets in our United Kingdom operations changes, we may be
required to record future charges, which could be significant,
to establish a valuation allowance for such assets.
Liquidity and
Capital Resources
Overview
As of December 31, 2006 and September 30, 2007, we had
cash and cash equivalents on hand of approximately
$2.7 million and $6.1 million, respectively, and
outstanding long-term debt, notes payable, and capital lease
obligations of approximately $252.9 million and
$408.9 million, respectively.
We have 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. We have historically used cash to invest in
additional operating ATMs, either through the acquisition of ATM
networks or through internally-generated growth as well as to
fund increases in working capital and to pay interest and
principal amounts outstanding under our borrowings. Because we
typically collect our cash on a daily basis and are not required
to pay our merchants and vendors until 20 and 30 days,
respectively, after the end of each calendar month, we are able
to utilize the excess upfront cash flow to pay down borrowings
made under our revolving credit facility and to fund our ongoing
capital expenditure program. Accordingly, we will typically
reflect a working capital deficit position and carry a very
small cash balance on our books.
Operating
Activities
Nine Months Ended
September 30, 2007 and September 30, 2006
Net cash provided by operating activities totaled
$35.0 million for the nine months ended September 30,
2007, compared to $16.9 million during the same period in
2006. The
year-over-year
increase was primarily attributable to the timing of changes in
our working capital balances. Specifically, we settled
approximately $15.1 million less on our outstanding
payables and other liabilities during the nine months ended
September 30, 2007 compared to the same period in 2006.
Years Ended
December 31, 2006, December 31, 2005, and
December 31, 2004
Net cash provided by operating activities was
$25.4 million, $33.2 million, and $20.5 million
for the years ended December 31, 2006, 2005, and 2004,
respectively. The decrease in 2006 was primarily attributable to
the payment of approximately $18.7 million in additional
interest costs in 2006 related to our $200.0 million senior
subordinated notes that were issued in August 2005, offset
somewhat by the incremental operating cash flows generated by
our United Kingdom operations as well as our domestic bank and
network branding arrangements. The increase in 2005 was
primarily attributable to the full-year effect of the E*TRADE
Access ATM portfolio acquisition and, to a lesser extent, the
acquisitions consummated in 2005. Additionally, incremental
costs associated with the integration of the E*TRADE Access ATM
portfolio and costs associated with our planned initial public
offering during 2004 burdened our 2004 net cash provided by
operating activities.
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 at least 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. However,
although we believe that we have sufficient flexibility under
our current revolving credit facility
86
to pursue and finance our expansion plans, such facility does
contain certain covenants, including a covenant that limits the
ratio of outstanding senior debt to EBITDA (as defined in the
facility), that could preclude us from drawing down the full
amount currently available for borrowing under such facility.
Accordingly, if we expand faster than planned, need to respond
to competitive pressures, or acquire additional ATM networks, we
may be required to seek additional sources of financing. Such
sources may come through the sale of equity or debt securities.
We cannot assure you that we will be able to raise additional
funds on terms favorable to us or at all. If future financing
sources are not available or are not available on acceptable
terms, we may not be able to fund our future needs. This may
prevent us from increasing our market share, capitalizing on new
business opportunities, or remaining competitive in our industry.
Investing
Activities
Nine Months Ended
September 30, 2007 and September 30, 2006
Net cash used in investing activities totaled
$179.5 million for the nine months ended September 30,
2007, compared to $25.9 million for the same period in
2006. The year-over-year increase was primarily driven by our
acquisition of the 7-Eleven Financial Services Business in July
2007 for $138.0 million. Also contributing to the increase
were additional ATM purchases, primarily in our United Kingdom
and Mexico segments, offset slightly by the receipt of
$4.0 million in proceeds from the sale of our Winn-Dixie
equity securities during 2007. Finally, although not reflected
in our 2007 statement of cash flows, we received the
benefit of the disbursement of approximately $3.1 million
of funds under three financing facilities entered into by our
majority-owned Mexican subsidiary, Cardtronics Mexico, for the
purchase of ATMs. Such funds are not reflected in our condensed
consolidated statement of cash flows as they were not remitted
by Cardtronics Mexico but rather were remitted directly to our
vendors by the finance company.
Years Ended
December 31, 2006, December 31, 2005, and
December 31, 2004
Net cash used in investing activities totaled
$36.0 million, $140.0 million, and $118.9 million
for the years ended December 31, 2006, 2005, and 2004,
respectively. The significant year-over-year decrease from 2005
to 2006 was driven by the $105.8 million in cash that was
expended to fund the Bank Machine, BAS Communications Inc., and
Neo Concepts, Inc. acquisitions during the first six months of
2005. During 2005 and 2004, a majority of the cash used in
investing activities was utilized to fund the acquisition of a
number of ATM portfolios and businesses, including the E*TRADE
Access ATM portfolio in 2004 and the Bank Machine acquisition in
2005. Additionally, such cash was utilized to make capital
expenditures related to those acquisitions, to install
additional ATMs in connection with acquired merchant
relationships, and to deploy ATMs in additional locations of
merchants with which we had existing relationships. Total
capital expenditures, including exclusive license payments and
site acquisition costs, were $36.1 million,
$31.9 million, and $19.7 million for the years ended
December 31, 2006, 2005, and 2004, respectively.
Remainder of
2007
We currently anticipate that the majority of our capital
expenditures for the foreseeable future will be driven by
internal growth projects as opposed to acquisitions, including
the purchasing of ATMs for existing as well as new ATM
management agreements. However, we will continue to pursue
selected acquisition opportunities that complement our existing
ATM network, some of which could be material, such as the
7-Eleven ATM Transaction completed in July 2007. We currently
expect that our capital expenditures for the remainder of 2007
will total approximately $20.0 million, the majority of
which will be utilized to purchase additional ATMs for our
Company-owned accounts and to upgrade our existing ATMs to
comply with current
87
security encryption and audio guidelines. Such amount also
includes the expected impact on our capital expenditure program
from the recently acquired 7-Eleven operations. We expect such
expenditures to be funded with cash generated from our
operations, supplemented by borrowings under our revolving
credit facility. To that end, we amended our revolving credit
facility in July 2007 in connection with the 7-Eleven ATM
Transaction such that the amount of capital expenditures we can
incur on a rolling
12-month
basis will increase to a maximum of $75.0 million by March
2008. This modification is expected to provide us with the
ability to incur the level of capital expenditures that we
currently deem necessary to support our ongoing operations and
future growth initiatives.
As a result of the 7-Eleven ATM Transaction, we assumed
responsibility for certain ATM operating lease contracts that
will expire at various times during the next three years, the
majority of which will expire in 2009. Accordingly, at that
time, we will be required to renew such lease contracts, enter
into new lease contracts, or purchase new or used ATMs to
replace the leased equipment. If we decide to purchase ATMs and
terminate the existing lease contracts at that time, we
currently anticipate that we will incur between $13.0 and
$16.0 million in related capital expenditures.
Additionally, we posted $7.5 million in letters of credit
related to these leases. See Financing
FacilitiesOther borrowing facilities below.
Financing
Activities
Nine Months Ended
September 30, 2007 and September 30, 2006
Net cash provided by financing activities totaled
$147.8 million for the nine months ended September 30,
2007, compared to $7.8 million during the same period in
2006. The increase in 2007 was due to the issuance of our
$100.0 million of Series B Notes and the incremental
borrowings under our revolving credit facility to fund the
7-Eleven ATM Transaction. Additionally, although not reflected
in our 2007 statement of cash flows, we received the
benefit of a disbursement of approximately $3.1 million of
funds under three financing facilities entered into by our
majority-owned Mexican subsidiary, Cardtronics Mexico. The
$3.1 million is not reflected in our condensed consolidated
statement of cash flows as the funds were not received by
Cardtronics Mexico but rather were remitted directly to our
vendors by the finance company. The remittance of such funds
served to purchase ATMs.
Years Ended
December 31, 2006, December 31, 2005, and
December 31, 2004
Net cash provided by financing activities was $11.2 million
for the year ended December 31, 2006, compared to net cash
provided by financing activities of $107.2 million and
$94.3 million for the years ended December 31, 2005
and 2004, respectively. In 2005 and 2004, the majority of our
cash provided by financing activities resulted from issuances of
additional long-term debt, offset somewhat in each period by our
repayments of other long-term debt and capital leases. Such
borrowings were primarily made in connection with the
previously-discussed ATM portfolio acquisitions, including the
Bank Machine acquisition in 2005 and the E*TRADE Access
acquisition in 2004. Additionally, in 2005 we issued
$75.0 million worth of Series B Convertible Preferred
Stock to a new investor, TA Associates. The net proceeds from
such offering were utilized to redeem our existing Series A
preferred stock, including all accrued and unpaid dividends
related thereto, and to redeem approximately 24% of our
outstanding common stock and vested options.
Financing
Facilities
As of September 30, 2007, we had approximately
$408.9 million in outstanding long-term debt, notes
payable, and capital lease obligations, which was comprised of
(i) approximately $295.9 million (net of discount of
$4.0 million) of
91/4% senior
subordinated notes and
91/4%
senior subordinated notesSeries B, both of which are due
August 2013, (ii) approximately
88
$105.6 million in borrowings under our existing revolving
credit facility, (iii) approximately $5.1 million in
notes payable, and (iv) approximately
$2.3 million in capital lease obligations.
Revolving credit
facility
In February 2006, we amended our then existing revolving credit
facility to remove and modify certain restrictive covenants
contained within the facility and to reduce the maximum
borrowing capacity from $150.0 million to
$125.0 million. As a result of this amendment, we recorded
a pre-tax charge of approximately $0.5 million associated
with the write-off of previously deferred financing costs
related to the facility. Additionally, we incurred approximately
$0.1 million in fees associated with such amendment.
In May 2007, we further amended our revolving credit facility to
modify, among other things, (i) the interest rate spreads
on outstanding borrowings and other pricing terms and
(ii) certain restrictive covenants contained within the
facility. Such modification will allow for reduced interest
expense in future periods, assuming a constant level of
borrowings. Furthermore, the amendment increased the amount of
capital expenditures we can incur on a rolling
12-month
basis from $50.0 million to $60.0 million. As a result
of these amendments, the primary restrictive covenants within
the facility include (i) limitations on the amount of
senior debt that we can have outstanding at any given point in
time, (ii) the maintenance of a set ratio of earnings to
fixed charges, as computed on a rolling
12-month
basis, (iii) limitations on the amounts of restricted
payments that can be made in any given year, and
(iv) limitations on the amount of capital expenditures that
we can incur on a rolling
12-month
basis. Additionally, we are currently prohibited from making any
cash dividends pursuant to the terms of the facility.
On July 20, 2007, in conjunction with the 7-Eleven ATM
Transaction, we further amended our revolving credit facility
to, among other things, (i) increase the maximum borrowing
capacity under the revolver from $125.0 million to
$175.0 million in order to partially finance the 7-Eleven
ATM Transaction and to provide additional financial flexibility,
(ii) increase the amount of indebtedness (as
defined in the credit agreement) to allow for the issuance of
our Series B Notes, (iii) extend the term of the
credit agreement from May 2010 to May 2012, (iv) increase
the amount of capital expenditures we can incur on a rolling
12-month
basis from $60.0 million to a maximum of
$75.0 million, and (v) amend certain restrictive
covenants contained within the facility. In conjunction with
this amendment, we borrowed approximately $43.0 million
under the credit agreement to fund a portion of the 7-Eleven ATM
Transaction. Additionally, we posted $7.5 million in
letters of credit under the facility in favor of the lessors
under the ATM equipment leases that we assumed in connection
with the 7-Eleven ATM Transaction. These letters of credit
further reduced our borrowing capacity under the facility. As of
September 30, 2007, our available borrowing capacity under
the amended facility, as determined under the earnings before
interest, taxes, depreciation, and amortization
(EBITDA) and interest expense covenants contained in
the agreement, totaled approximately $61.9 million.
Borrowings under the revolving credit facility currently bear
interest at the London Interbank Offered Rate
(LIBOR) plus a spread, which was 2.5% as of
September 30, 2007. Additionally, we pay a commitment fee
of 0.3% per annum on the unused portion of the revolving credit
facility. Substantially all of our assets, including the stock
of our wholly-owned domestic subsidiaries and 66.0% 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. As of September 30, 2007, we were
in compliance with all applicable covenants and ratios in effect
at that time under the facility.
89
Senior
subordinated notes
August 2005 Issuance. On August 12, 2005,
we sold $200.0 million in senior subordinated notes. The
notes, which are subordinate to borrowings made under the
revolving credit facility but equal in right of payment to the
notes issued in July 2007, mature in August 2013 and carry a
9.25% coupon with an effective yield of 9.375%. Interest under
the notes is paid semi-annually 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 to incur additional indebtedness and make certain types
of restricted payments, including dividends.
July 2007 Issuance. On July 20, 2007, we
sold $100.0 million in senior subordinated
notesSeries B. The Series B Notes, which are
subordinate to borrowings made under the revolving credit
facility but equal in right of payment to the notes issued in
August 2005, mature in August 2013 and carry a 9.25% coupon with
an effective yield of 9.5%. Interest under the Series B
Notes is paid semi-annually in arrears on
February 15th and August 15th of each year.
Net proceeds from the offering, totaled approximately
$97.0 million. Proceeds from this issuance, along with cash
on hand and additional borrowings under our revolving credit
facility, were utilized to finance the 7-Eleven ATM Transaction.
In addition, pursuant to the registration rights agreement
executed as part of this offering, we have agreed to file with
the SEC a shelf registration statement on or prior to the later
of 240 days after the closing of the offering or
60 days after such filing obligation arises and use their
reasonable best efforts to cause the shelf registration
statement to be declared effective by the SEC on or prior to the
later of 360 days after the closing of the offering or
120 days after such obligation arises. If we fail to
satisfy our registration obligations under the registration
rights agreement, we will be required to pay additional interest
to the holders of the Series B Notes under certain
circumstances.
Covenants. The indentures governing the senior
subordinated notes contain certain restrictive covenants,
including (i) limitations on the amount of senior debt we can
incur, (ii) limitations on the amount of restricted
payments that can be made, and (iii) limitations on the creation
or incurrence of liens on our assets.
Other borrowing
facilities
In addition to the above revolving credit facility, Bank Machine
has a £2.0 million unsecured overdraft facility that
expires in July 2008. Such facility, which bears interest at
1.75% over the banks base rate (5.75% as of
September 30, 2007), is utilized for general corporate
purposes for our United Kingdom operations. As of
September 30, 2007 and December 31, 2006,
approximately £1.9 million ($3.8 million and $3.7 million,
respectively) of this overdraft facility has been utilized to
help fund certain working capital commitments and to post a
£275,000 bond. Amounts outstanding under the overdraft
facility, other than those amounts utilized for posting bonds,
are reflected in accounts payable in our consolidated balance
sheet, as such amounts are automatically repaid once cash
deposits are made to the underlying bank accounts.
During 2006 and 2007, Cardtronics Mexico entered into four
separate five-year equipment financing agreements with a single
lender. Such agreements, which are denominated in Mexican pesos
and bear interest at an average fixed rate of 11.03%, were
utilized for the purchase of additional ATMs to support our
Mexico operations. As of September 30, 2007, approximately
$53.6 million pesos ($4.9 million U.S.) were
outstanding under the agreements in place at that time. As of
December 31, 2006, approximately $9.3 million pesos
($857,000 U.S.) were outstanding under the agreement in place at
that time. Pursuant to the terms of the loan agreement,
Cardtronics, Inc. has issued a guaranty for 51.0% of the
obligations under this
90
agreement (consistent with its ownership percentage in
Cardtronics Mexico.) As of September 30, 2007, the total
amount of the guaranty was $27.3 million pesos
($2.5 million U.S.).
In connection with the 7-Eleven ATM Transaction, we assumed
capital lease obligations for various ATMs. As of
September 30, 2007, these obligations totaled approximately
$2.3 million. We posted $7.5 million in letters of credit
under our revolving credit facility in favor of the lessors
under these assumed equipment leases. These letters of credit
reduce the available borrowing capacity under our revolving
credit facility.
Effects of
Inflation
Our monetary assets, consisting primarily of cash and
receivables, are not significantly affected by inflation. Our
non-monetary assets, consisting primarily of tangible and
intangible assets, are not affected by inflation. We believe
that replacement costs of equipment, furniture, and leasehold
improvements will not materially affect our operations. However,
the rate of inflation affects our expenses, such as those for
employee compensation and telecommunications, which may not be
readily recoverable in the price of services offered by us.
Contractual
Obligations
The following table reflects our significant contractual
obligations and other commercial commitments as of
September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Long-term financings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal (1)
|
|
$
|
63
|
|
|
$
|
537
|
|
|
$
|
1,150
|
|
|
$
|
1,297
|
|
|
$
|
1,425
|
|
|
$
|
406,033
|
|
|
$
|
410,505
|
|
Interest (2)
|
|
|
2,315
|
|
|
|
36,797
|
|
|
|
36,701
|
|
|
|
36,566
|
|
|
|
36,415
|
|
|
|
58,783
|
|
|
|
207,577
|
|
Notes
payable (3)
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165
|
|
Operating leases
|
|
|
1,363
|
|
|
|
5,374
|
|
|
|
5,115
|
|
|
|
1,044
|
|
|
|
538
|
|
|
|
2,907
|
|
|
|
16,341
|
|
Capital leases
|
|
|
385
|
|
|
|
1,048
|
|
|
|
755
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
2,428
|
|
Merchant space leases
|
|
|
1,166
|
|
|
|
4,645
|
|
|
|
2,247
|
|
|
|
1,408
|
|
|
|
1,347
|
|
|
|
2,347
|
|
|
|
13,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
5,457
|
|
|
$
|
48,401
|
|
|
$
|
45,968
|
|
|
$
|
40,555
|
|
|
$
|
39,725
|
|
|
$
|
470,070
|
|
|
$
|
650,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents the face value of our
Series B Notes of $100.0 million, the face value of
our
91/4% senior
subordinated notes due in 2013 issued in August 2005 of
$200.0 million, $105.6 million outstanding under our
amended revolving credit facility, and approximately
$4.9 million outstanding under our Mexico equipment
financing facilities.
|
|
(2)
|
|
Represents the estimated interest
payments associated with our long-term debt outstanding as of
September 30, 2007.
|
|
(3)
|
|
Represents a fully-funded note
issued in conjunction with the Bank Machine acquisition in 2005.
|
Critical
Accounting Policies and Estimates
Our consolidated financial statements included elsewhere in this
prospectus have been prepared in accordance with accounting
principles generally accepted in the United States, which
require that management make numerous estimates and assumptions.
Actual results could differ from those estimates and
assumptions, thus impacting our reported results of operations
and financial position. The critical accounting 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
91
describe our significant accounting policies more fully in
Note 1 to our consolidated financial statements included
elsewhere in this prospectus.
Goodwill and Intangible Assets. We accounted
for the 7-Eleven ATM Transaction, E*TRADE Access, Bank Machine,
and ATM National, Inc. acquisitions as business combinations
pursuant to SFAS No. 141, Business
Combinations. Additionally, we have applied the concepts of
SFAS No. 141 to our purchase of a majority interest in
CCS Mexico (i.e. Cardtronics Mexico). Accordingly, the amounts
paid for such acquisitions have been allocated to the assets
acquired and liabilities assumed based on their respective fair
values as of each acquisition date. Intangible assets, net,
consists primarily of acquired merchant contracts and
relationships, the Bank Machine and Allpoint (via the ATM
National, Inc. acquisition) trade names, and the non-compete
agreements entered into in connection with the Cardtronics
Mexico acquisition, as well as deferred financing costs.
SFAS No. 142, Goodwill and Other Intangible
Assets, provides that goodwill and other intangible assets
that have indefinite useful lives will not be amortized, but
instead must be tested at least annually for impairment, and
intangible assets that have finite useful lives should be
amortized over their estimated useful lives. SFAS 142 also
provides specific guidance for testing goodwill and other
non-amortized
intangible assets for impairment. SFAS 142 requires
management to make certain estimates and assumptions in order to
allocate goodwill to reporting units and to determine the fair
value of a reporting 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, SFAS 142
exposes us to the possibility that changes in market conditions
could result in potentially significant impairment charges in
the future.
Valuation of Long-Lived Assets. We place
significant value on the installed ATMs that we own and manage
in merchant locations and the related acquired merchant
contracts/relationships. In accordance with
SFAS No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets, long-lived assets, such as property
and equipment and purchased contract intangibles subject to
amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. The recoverability of assets
to be held and used is measured by a comparison of the carrying
amount of an asset to the estimated undiscounted future cash
flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated undiscounted future
cash flows, an impairment charge would be recognized by the
amount that the carrying amount of the asset exceeds the fair
value of the asset. Our determination that an adverse event or
change in circumstances has occurred will generally involve
(1) a greater attrition rate compared to estimated
renewals, (2) an unexpected decline in transactions without
any offsetting incremental revenues (i.e., bank branding), or
(3) a change in strategy affecting the utility of the
asset. Our measurement of the fair value of an impaired asset
will generally be based on an estimate of discounted future cash
flows.
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
92
scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this
assessment.
Asset Retirement Obligations. We account for
our asset retirement obligations in accordance with
SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires that we
estimate the fair value of future retirement obligations
associated with our ATMs, including costs associated with
deinstalling the ATMs and, in some cases, refurbishing the
related merchant locations. Such estimates are based on a number
of assumptions, including (i) the types of ATMs that are
installed, (ii) the relative mix where those ATMs are
installed (i.e., whether such ATMs are located in
single-merchant locations or in locations associated with large,
geographically dispersed retail chains), and (iii) whether
we will ultimately be required to refurbish the merchant store
locations upon the removal of the related ATMs. Additionally, we
are required to make estimates regarding the timing of when such
retirement obligations will be incurred.
The fair value of a liability for an asset retirement obligation
is recognized in the period in which it is incurred and can be
reasonably estimated. Such asset retirement costs are
capitalized as part of the carrying 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. As a result of our
adoption of SFAS No. 123R, Share-based Payment,
effective January 1, 2006, we are required to make certain
estimates and judgments with respect to our share-based
compensation programs. Such standard requires that we record
compensation expense for all share-based awards based on the
grant-date fair value of those awards. In determining the fair
value of our share-based awards, we are required to make certain
assumptions and estimates, including (i) the number of
awards that may ultimately be forfeited by the recipients,
(ii) the expected term of the underlying awards, and
(iii) the future volatility associated with the price of
our common stock. Such estimates, and the basis for our
conclusions regarding such estimates, are outlined in detail in
Note 3 in the notes to our consolidated financial
statements included elsewhere in this prospectus.
New Accounting
Pronouncements
Accounting for Uncertainty in Income
Taxes. During the first quarter of 2007, we
adopted the provisions of Financial Accounting Standards Board
(FASB) Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement
No. 109. This interpretation clarifies the accounting
for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
SFAS No. 109, Accounting for Income Taxes. The
interpretation prescribes a recognition threshold and
measurement attribute for a tax position taken or expected to be
taken in a tax return and also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. We
applied the provisions of FIN 48 to all tax positions upon
its initial adoption effective January 1, 2007, and
determined that no cumulative effect adjustment was required as
of such date. As of September 30, 2007, we had a
$0.2 million reserve for uncertain tax positions recorded
pursuant to FIN 48. See Note 16 in the notes to our
consolidated financial statements included elsewhere in this
prospectus for additional information regarding the
Companys adoption of FIN 48.
Fair Value Measurements. In September 2006,
the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS No. 157), which
provides guidance on measuring the fair value of assets and
liabilities in the financial statements. The provisions of
SFAS No. 157 are effective for fiscal years beginning
after November 15, 2007, and interim periods within those
fiscal
93
years. We are currently evaluating the impact, if any, this
statement will have on our financial statements.
Fair Value Option. In February 2007, the FASB
issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities
(SFAS No. 159), which provides
companies the option to measure certain financial instruments
and other items at fair value. The provisions of
SFAS No. 159 are effective as of the beginning of
fiscal years beginning after November 15, 2007. We are
currently evaluating the impact, if any, this statement will
have on our financial statements.
Registration Payment Arrangements. In December
2006, the FASB issued FASB Staff Position (FSP)
Emerging Issues Task Force (EITF)
No. 00-19-2,
Accounting for Registration Payment Arrangements
(FSP
EITF 00-19-2),
which addresses an issuers accounting for registration
payment arrangements. Specifically, FSP
EITF 00-19-2
specifies that the contingent obligation to make future payments
or otherwise transfer consideration under a registration payment
arrangement, whether issued as a separate agreement or included
as a provision of a financial instrument or other agreement,
should be separately recognized and measured in accordance with
SFAS No. 5, Accounting for Contingencies. The
guidance contained in this standard amends
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended, and
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity, as well as FIN 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, to include
scope exceptions for registration payment arrangements. FSP
EITF 00-19-2
is effective immediately for registration payment arrangements
and the financial instruments subject to those arrangements that
are entered into or modified subsequent to the date of issuance
of this standard. For registration payment arrangements and
financial instruments subject to those arrangements that were
entered into prior to the issuance of this standard, the
guidance in the standard is effective for financial statements
issued for fiscal years beginning after December 15, 2006,
and interim periods within those fiscal years. Our adoption of
this standard on January 1, 2007 had no impact on our
financial statements. We are currently evaluating the impact
that the implementation of FSP
EITF 00-19-2
may have on our financial statements as it relates to our
issuance of $100.0 million of Series B Notes in July
2007, as we have agreed to file a registration statement with
the SEC within 240 days of the issuance of the
Series B Notes with respect to an offer to exchange each of
the Series B Notes for a new issue of its debt securities
registered under the Securities Act and to use reasonable best
efforts to have the exchange offer become effective as soon as
reasonably practicable after filing but in any event no later
than 360 days after the initial issuance date of the
Series B Notes.
Disclosure about
Market Risk
Interest Rate
Risk
Vault cash expense. Because our ATM cash
rental expense is based on market rates of interest, it is
sensitive to changes in the general level of interest rates in
the United States, the United Kingdom, and Mexico. Our
outstanding vault cash, which represents the cash we rent and
place in our ATMs in cases where the merchant does not provide
the cash, totaled approximately $740.6 million in the
United States, $140.4 million in the United Kingdom, and
$6.3 million in Mexico as of September 30, 2007. We
pay a monthly fee on the average amount of vault cash
outstanding in the majority of our ATMs in the United States to
Bank of America and PDNB under a formula based on LIBOR. We pay
a monthly fee to ALCB in the United Kingdom based on a similar
formula based on LIBOR. Under our recently executed vault cash
arrangement with Wells Fargo for the acquired 7-Eleven ATMs and
Vcomtm
units, we pay a monthly fee on the average amount of vault cash
outstanding based on the federal funds effective rate. In
Mexico, we pay a monthly fee to our vault cash provider there
under a formula based on TIIE.
94
As of September 30, 2007, we had entered into a number of
LIBOR-based interest rate swaps to fix the rate of interest we
pay on $300.0 million of our current and anticipated
outstanding domestic vault cash balances through
December 31, 2008, $200.0 million through
December 31, 2009, and $100.0 million through
December 31, 2010. We have not currently entered into any
derivative financial instruments to hedge our variable interest
rate exposure in the United Kingdom or Mexico.
The effect of the domestic LIBOR-based swaps mentioned above was
to fix the interest rate paid on the following notional amounts
for the periods identified (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Notional Amount
|
|
Fixed Rate
|
|
Period
|
|
$
|
300,000
|
|
|
|
4.00
|
%
|
|
October 1, 2007December 31, 2007
|
$
|
300,000
|
|
|
|
4.35
|
%
|
|
January 1, 2008December 31, 2008
|
$
|
200,000
|
|
|
|
4.36
|
%
|
|
January 1, 2009December 31, 2009
|
$
|
100,000
|
|
|
|
4.34
|
%
|
|
January 1, 2010December 31, 2010
|
In conjunction with the 7-Eleven ATM Transaction, we entered
into a separate vault cash agreement with Wells Fargo to supply
the cash that we utilize in the operation of the 5,500 ATMs
and
Vcomtm
units we acquired in that transaction. Under the terms of the
vault cash agreement, we pay a monthly fee to Wells Fargo on the
average amount of cash outstanding under a formula based on the
federal funds effective rate. Subsequent to the 7-Eleven ATM
Transaction, the outstanding vault cash balance for the acquired
7-Eleven
ATMs and
Vcomtm
units averaged approximately $350.0 million. As a result,
our exposure to changes in domestic interest rates has
significantly increased. Accordingly, we entered into additional
interest rate swaps in August 2007 to limit our exposure to
changing interest-based rental rates on $250.0 million of
our current and anticipated 7-Eleven ATM cash balances. The
effect of these swaps was to fix the interest-based rental rate
paid on the $250.0 million notional amount at 4.93%
(excluding the applicable margin) through December 2010.
As of September 30, 2007, our interest rate swaps had a
carrying amount of $2.5 million, which represented the fair
value of such agreements based on third-party quotes for similar
instruments with the same terms and conditions, as such
instruments are required to be carried at fair value. These
swaps have been classified as cash flow hedges pursuant to
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended. Accordingly, changes in
the fair values of such swaps have been reported in accumulated
other comprehensive income (loss) in the accompanying condensed
consolidated balance sheets. As a result of the Companys
overall net loss position for tax purposes, we have not recorded
taxes on the loss amount related to the Companys interest
rate hedges as of September 30, 2007, as we do not believe
that the Company will be able to realize the benefits associated
with its deferred tax positions.
Net amounts paid or received under such swaps are recorded as
adjustments to our Cost of ATM operating revenues in
the accompanying consolidated statements of operations. During
the year ended December 31, 2006 and the nine months ended
September 30, 2007, the gains or losses as a result of
ineffectiveness associated with our existing interest rate swaps
were immaterial.
Based on the $740.6 million in vault cash outstanding in
the United States as of September 30, 2007, and assuming no
benefits from the existing interest rate hedges that are
currently in place, for every interest rate increase of
100 basis points, we would incur an additional
$7.4 million of vault cash rental expense on an annualized
basis. Factoring in the $550.0 million in interest rate
swaps outstanding at September 30, 2007, as discussed
above, for every interest rate increase of 100 basis
points, we would incur an additional $1.9 million of vault
cash rental expense on an annualized basis. Based on the
$140.4 million in vault cash outstanding in the United
Kingdom as of September 30, 2007, for every interest rate
increase
95
of 100 basis points, we would incur an additional
$1.4 million of vault cash rental expense on an annualized
basis. Based on the $6.3 million in vault cash outstanding
in Mexico, we would incur roughly $63,000 in additional vault
cash rental expense on an annualized basis for every interest
rate increase of 100 basis points.
Interest expense. Our interest expense is also
sensitive to changes in the general level of interest rates in
the United States, as our borrowings under our domestic
revolving credit facility accrue interest at floating rates. As
a result of the additional amount of borrowings outstanding
under our revolving credit facility that were utilized to
finance our acquisition of the ATM portfolio of 7-Eleven, our
exposure to movement in interest rates will increase
significantly going forward. Based on the $105.6 million
outstanding under such facility as of September 30, 2007,
an increase of 100 basis points in the underlying interest
rate would result in an additional $1.1 million of interest
expense on an annualized basis.
Recent upward pressure on short-term interest rates in the
United States has resulted in slight increases in our interest
expense under our bank credit facilities and our vault cash
rental expense. Although we currently hedge a substantial
portion of our vault cash interest rate risk through 2010, as
noted above, we may not be able to enter into similar
arrangements for similar amounts in the future. Any significant
increase in interest rates in the future could have an adverse
impact on our business, financial condition and results of
operations by increasing our operating costs and expenses.
Finally, while the carrying amount of our cash and cash
equivalents and other current assets and liabilities
approximates fair value due to the relatively short maturities
of these instruments, we are exposed to changes in market values
of our investments and long-term debt. As discussed above, the
carrying amount of our interest rate swaps approximates fair
value as of September 30, 2007. In addition, the
$105.6 million carrying amount of the Companys
long-term debt balance related to borrowings under our revolving
credit facility approximates fair value due to the fact that
such borrowings are subject to floating market interest rates.
Conversely, the carrying amount of our $200.0 million,
91/4% senior
subordinated notes issued in August 2005 and $100.0 million,
91/4%
senior subordinated notesSeries B was $296.0 million
as of September 30, 2007, compared to a fair value of
$287.8 million. Such notes pay interest in semi-annual
installments based on a 9.25% stated interest rate. The fair
value of the senior subordinated notes as of September 30,
2007, was based on the quoted market prices for such notes.
Foreign Currency
Exchange Risk
Due to our acquisition of Bank Machine in 2005 and our
acquisition of a majority interest in Cardtronics Mexico in
2006, we are exposed to market risk from changes in foreign
currency exchange rates, specifically with changes in the
U.S. dollar relative to the British pound and Mexican peso.
Our United Kingdom and Mexico subsidiaries are consolidated into
our financial results and are subject to risks typical of
international businesses including, but not limited to,
differing economic conditions, changes in political climate,
differing tax structures, other regulations and restrictions,
and foreign exchange rate volatility. Furthermore, we are
required to translate the financial condition and results of
operations of Bank Machine and Cardtronics Mexico into
U.S. dollars, with any corresponding translation gains or
losses being recorded in other comprehensive income or loss in
our consolidated financial statements. As of September 30,
2007, such translation gain totaled approximately
$11.1 million.
96
Our future results could be materially impacted by changes in
the value of the British pound relative to the U.S. dollar.
Additionally, as our Mexico operations expand, our future
results could be materially impacted by changes in the value of
the Mexican peso relative to the U.S. dollar. At this time,
we have not deemed it to be cost effective to engage in a
program of hedging the effect of foreign currency fluctuations
on our operating results using derivative financial instruments.
A sensitivity analysis indicates that, if the U.S. dollar
uniformly strengthened or weakened 10% against the British
pound, the effect upon Bank Machines operating income for
the nine month period ended September 30, 2007 would have
been an unfavorable or favorable adjustment, respectively, of
approximately $0.3 million. Given the limited size and
scope of Cardtronics Mexicos current operations, a similar
sensitivity analysis would have resulted in a negligible
adjustment to Cardtronics Mexicos financial results for
the nine month period ended September 30, 2007.
We do not hold derivative commodity instruments and all of our
cash and cash equivalents are held in money market and checking
funds.
97
A Typical ATM
Transaction
A typical ATM transaction involves the withdrawal of cash from
an ATM. The cardholder presents an ATM card, issued by his or
her financial institution, at an ATM that may or may not be
owned by the same financial institution. The cardholder then
enters a personal identification number, or PIN, to verify
identity, the cardholders account is checked for adequate
funds and, if everything is satisfactory, cash is dispensed. All
of these communications are routed across one or more EFT
networks that electronically connect ATMs and financial
institutions and allow transactions to appear seamless and
nearly instantaneous.
In the United States and Mexico, when a cardholder withdraws
cash from an ATM that is not owned by the cardholders
financial institution, there are typically two charges applied.
The first charge is the surcharge fee paid by the cardholder for
using the ATM. The second charge is an interchange fee that the
cardholders financial institution pays to the ATM operator
and the EFT network over which the transaction is routed. Often,
the cardholders financial institution also charges the
cardholder a fee called a foreign fee for using an ATM not owned
by that financial institution. This charge helps the financial
institution defray the cost of the interchange fee it pays.
Conversely, in the United Kingdom, when a cardholder withdraws
cash from an ATM that is not owned by the cardholders
financial institution, either a surcharge fee or an interchange
fee is charged, but not both. If a pay-to-use ATM is used, the
cardholder is charged a surcharge fee. If a free-to-use ATM is
used (i.e., a surcharge-free ATM), an interchange fee is
charged. In the U.K., interchange fees are earned on all ATM
transactions other than surcharge-bearing cash withdrawals.
History of the
U.S. ATM Industry
The first ATMs in the United States were installed in the early
1970s, and by 1980, approximately 18,500 ATMs were in use
throughout the nation. These ATMs initially were located at
financial institution branches. According to ATM&Debit
News, there were estimated to be approximately 415,000 ATMs
in the United States in March 2007, the majority of which
are located at non-bank locations. A non-bank location is one
that is not located within a federal or state chartered bank,
savings and loan, credit union or other financial institution.
Early in the development of the ATM industry, regional and
national electronic authorization data networks, or EFT
networks, connected ATMs to financial institutions that were
members of a particular EFT network. Regional EFT networks in
different parts of the United States were not electronically
connected to each other. For example, customers of a bank in New
York could not travel to Los Angeles and access their cash at an
ATM because the networks serving New York and Los Angeles were
not connected. During the 1990s, many regional EFT networks
merged or entered into reciprocal processing agreements with
other networks, which helped to increase ATM usage and spur
consumer demand for ATM services.
Although ATMs were originally located only at financial
institution branches, they soon began to appear in a variety of
off-premise locations, such as convenience stores, supermarkets,
drug stores, shopping malls, hotels, casinos, and airports.
These locations offer a convenient alternative to obtaining cash
from bank tellers, branch ATMs, or drive-through facilities.
Both merchants and their customers benefit from the presence of
an ATM in a store. Merchants benefit from increased consumer
traffic, merchant fees received from the ATM operator, and
reduced check-writing and credit card processing fees, while
cardholders benefit from increased access to their cash.
Deployment of off-premise ATMs, however, was impeded by the
prevailing strategy among financial institutions not to charge
their cardholders surcharge fees for the convenience of
accessing their financial institution accounts at non-financial
institution locations. Until 1996, most EFT networks did not
allow surcharge fees for ATM transactions that were routed over
their networks. However, beginning in that year, the two
98
largest EFT networks, Cirrus and Plus, began to allow surcharge
fees and other networks followed.
Recent Trends in
the U.S. ATM Industry
The introduction of surcharge revenue in the ATM market made the
deployment of off-premise ATMs economically feasible and
attractive for non-financial institutions. Following this shift,
according to ATM&Debit News, the number of
off-premise ATMs in the United States grew at a rapid pace,
increasing in number from approximately 84,000 in 1998 to an
estimated 236,000 off-premise ATMs in 2007. Additionally, this
period of expansion in the off-premise business model saw a
notable shift in the relative prevalence of on- and off-premise
ATMs. As per ATM&Debit News, off-premise ATMs
represented approximately 45% of total ATMs in the United States
in 1998. By 2007, the market share of off-premise ATMs had grown
to approximately 57%. Despite this long-term growth trend, the
annual growth rate for off-premise ATMs has slowed considerably
since 2003. Furthermore, the number of off-premise ATMs declined
since 2005, indicating the continued maturation of the domestic
off-premise ATM market.
The maturation of the domestic ATM market has seen an increase
in the average surcharge rates charged by ATM operators.
According to Dove Consulting, average surcharge rates on
off-premise ATM transactions have increased by 21% from 2001 to
2006, rising from $1.48 to $1.79, respectively. On-premise ATMs
have exhibited a similar trend, with average surcharge rates
growing 20% over the same time period.
Source: ©Dove
Consulting, 2006 ATM Deployer Study. Reprinted with Permission.
99
Additionally, despite the fact that electronic payment
alternatives such as debit and prepaid cards have gained
popularity in recent years, overall cash usage trends in the
United States have remained stable. The overall level of
domestic cash usage from 2001 to 2005 remained stable at
approximately one-third of total transaction spending,
maintaining a strong demand for convenient access for cash and
ATM transactions.
|
|
Source:
|
©2005
American Bankers Association and Dove Consulting, a division
of Hitachi Consulting. Reprinted with Permission. All Rights
Reserved.
|
Developing Trends
in the ATM Industry
Increase in Bank and Network Branding
Arrangements. Many U.S. banks serving the
market for consumer banking services are aggressively competing
for market share, and part of their competitive strategy is to
increase their number of customer touch points, including the
establishment of an ATM network to provide convenient cash
access to their customers. A large owned-ATM network would be a
key strategic asset for a bank, but we also believe it would be
uneconomical for all but the very 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
and network branding, and we believe that there will be
continued growth in such arrangements.
Growth in International Markets. In many
regions of the world, ATMs are less common than in the United
States. We believe the ATM industry will grow faster in
international markets than in the U.S., as the number of ATMs
per capita in those markets approaches the U.S. level. In
addition, there has been a trend towards growth of off-premise
ATMs in several international markets, including the United
Kingdom and Mexico.
The United Kingdom is the largest ATM market in Europe. Until
the late 1990s, most U.K. ATMs were installed at bank and
building society branches. Non-bank operators began to deploy
ATMs in the United Kingdom in December 1998 when LINK (which
connects together the ATM networks of all U.K. ATM operators)
allowed them entry into its network via arrangements between
non-bank operators and U.K. financial institutions. We believe
that non-bank ATM operators have benefited in recent years from
customer demand for more conveniently located cash machines, the
emergence of internet banking with no established point of
presence and the closure of bank branches due to consolidation.
According to LINK, a total of approximately 60,000 ATMs were
deployed in the United Kingdom as of December 2006, of which
approximately 27,000 were operated by non-banks. This has grown
from approximately 36,700 total ATMs in 2001, with less than
7,000 operated by non-banks. The following table
100
shows the compound annual growth rate (CAGR) for
ATMs deployed in the United Kingdom from 2000 to 2006.
Source: APACS
U.K. Payment Statistics 2007
Similar to the U.S., electronic payment alternatives have gained
popularity in the U.K. in recent years. However, cash is still
the primary payment method preferred by consumers, representing
nearly two-thirds of total transaction spending.
Source: APACS
U.K. Payment Statistics 2007
101
Annual ATM cash withdrawal transactions continue to remain
strong in the U.K., reflecting consumers preference to
utilize cash for their transaction spending.
Source: APACS
U.K. Payment Statistics 2007.
According to the Central Bank of Mexico, as of December 2006,
Mexico had approximately 25,600 ATMs operating throughout the
country, substantially all of which are owned by national and
regional banks. Historically, surcharge fees were not allowed
pursuant to Mexican law. However, in July 2005, the Mexican
government approved a measure that now allows ATM operators to
charge a fee to individuals withdrawing cash from their ATMs. As
a result of the Mexican government approving surcharging and the
relatively low level of penetration of ATMs in Mexico, we
believe that there will be significant growth in the number of
ATMs owned by non-banks.
Outsourcing by Banks and Other Financial
Institutions. While many banks and other
financial institutions own significant networks of ATMs that
serve as extensions of their branch networks and increase the
level of service offered to their customers, large ATM networks
are costly to operate and typically do not provide significant
revenue for banks and other financial institutions. We believe
there is an opportunity for large non-bank ATM operators with
low 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.
102
Company
Overview
We operate the worlds largest network of ATMs. Our network
currently includes over 31,500 ATMs, principally in national and
regional merchant locations throughout the United States, the
United Kingdom and Mexico. Approximately 19,600 of the ATMs we
operate are Company-owned and 11,900 are merchant-owned. Our
high-traffic retail locations and national footprint make us an
attractive partner for regional and national financial
institutions which are seeking to increase their market
penetration. Over 9,500 of our Company-owned ATMs are under
contract with well-known banks to place their logos on such
machines and provide surcharge-free access to their customers,
making us the largest non-bank owner and operator of
bank-branded ATMs in the United States. We also operate the
Allpoint network, which sells surcharge-free access to financial
institutions that lack a significant ATM network. We believe
that Allpoint is the largest surcharge-free network in the
United States based on the number of participating ATMs.
The following tables set forth our leading position among ATM
operators in the U.S. and world-wide ATM markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
% of
|
U.S. Rank
|
|
|
|
ATMs
|
|
Total
|
|
|
1
|
|
|
Cardtronics
|
|
|
28,600
|
|
|
|
6.9
|
%
|
|
2
|
|
|
Bank of America
|
|
|
18,600
|
|
|
|
4.5
|
%
|
|
3
|
|
|
ATM Express
|
|
|
16,700
|
|
|
|
4.0
|
%
|
|
4
|
|
|
TRM
|
|
|
10,500
|
|
|
|
2.5
|
%
|
|
5
|
|
|
PAI ATM Services
|
|
|
8,700
|
|
|
|
2.1
|
%
|
|
6
|
|
|
JPMorgan Chase
|
|
|
8,600
|
|
|
|
2.1
|
%
|
|
7
|
|
|
Wells Fargo
|
|
|
6,800
|
|
|
|
1.6
|
%
|
|
8
|
|
|
International Merchant Services
|
|
|
5,900
|
|
|
|
1.4
|
%
|
|
9
|
|
|
Wachovia Bank
|
|
|
5,100
|
|
|
|
1.2
|
%
|
|
10
|
|
|
Access to Money
|
|
|
5,000
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Top 10
|
|
|
114,500
|
|
|
|
27.6
|
%
|
|
|
|
|
U.S. Market
|
|
|
415,000
|
|
|
|
100.0
|
%
|
Source: 2008 EFT Data Book,
excluding Cardtronics data which is based on internal data
as of September 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
World-wide
|
|
|
|
World-wide
|
|
% of
|
Rank
|
|
|
|
ATMs
|
|
Total
|
|
|
1
|
|
|
Cardtronics (USA)
|
|
|
31,500
|
|
|
|
2.0
|
%
|
|
2
|
|
|
Japan Post (Japan)
|
|
|
26,500
|
|
|
|
1.7
|
%
|
|
3
|
|
|
Banco de Brasil (Brazil)
|
|
|
26,300
|
|
|
|
1.7
|
%
|
|
4
|
|
|
Banco Itau (Brazil)
|
|
|
21,100
|
|
|
|
1.4
|
%
|
|
5
|
|
|
Natl Agricultural Co-op (South Korea)
|
|
|
20,400
|
|
|
|
1.3
|
%
|
|
6
|
|
|
Ind. & Commercial Bank of China (China)
|
|
|
18,900
|
|
|
|
1.2
|
%
|
|
7
|
|
|
Caixa Economica Federal (Brazil)
|
|
|
18,900
|
|
|
|
1.2
|
%
|
|
8
|
|
|
Bank of America (USA)
|
|
|
18,600
|
|
|
|
1.2
|
%
|
|
9
|
|
|
Bradesco (Brazil)
|
|
|
16,600
|
|
|
|
1.1
|
%
|
|
10
|
|
|
China Construction Bank (China)
|
|
|
15,800
|
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Top 10
|
|
|
214,600
|
|
|
|
13.9
|
%
|
|
|
|
|
World-wide Market
|
|
|
1,540,000
|
|
|
|
100.0
|
%
|
Source: Retail Banking Research,
excluding Bank of Americas data which is based on the 2008
EFT Data Book and Cardtronics data which is based on
internal data as of September 30, 2007.
103
7-Eleven ATM
Transaction
On July 20, 2007, we purchased substantially all of the
assets of the 7-Eleven Financial Services Business for
approximately $138.0 million in cash. That amount included
a $2.0 million payment for estimated acquired working
capital and approximately $1.0 million in other related
closing costs. Subsequent to September 30, 2007, the
working capital payment was reduced to $1.3 million based
on actual working capital amounts outstanding as of the
acquisition date, thus reducing the Companys overall cost
of the acquisition to $137.3 million. We financed the
7-Eleven ATM Transaction, including related fees and expenses,
through the issuance of $100.0 million in
91/4% senior
subordinated notes due 2013Series B, and borrowings
under our amended revolving credit facility.
The 7-Eleven Financial Services Business operates approximately
5,500 ATMs, including approximately 2,000
Vcomtm
units, which, in addition to standard ATM services, offer the
Vcomtm
Services. Because of the significance of this acquisition, our
historical operating results are not expected to be indicative
of our future operating results. See Unaudited Pro Forma
Condensed Consolidated Financial Statements and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this prospectus for additional information. In connection with
the 7-Eleven ATM Transaction, we entered into a placement
agreement that will provide us, subject to certain conditions,
with a ten-year exclusive right to operate all ATMs and
Vcomtm
units in 7-Eleven locations throughout the U.S., including any
new stores opened or acquired by 7-Eleven.
For the year ended December 31, 2006 and the nine months
ended September 30, 2007, the
7-Eleven
Financial Services Business generated $163.7 million and
$117.6 million of revenues, respectively, and
$10.8 million and $4.4 million of net income,
respectively. Those amounts include approximately
$18.7 million and $4.6 million, respectively, of
upfront placement fees received by 7-Eleven related to the
development of its advanced-functionality services,
approximately $18.0 million and $4.2 million of which
are related to arrangements that ended prior to our acquisition
of the
7-Eleven
Financial Services Business, and thus will not continue in the
future. While we believe we will continue to earn some placement
fee revenues related to the acquired financial services business
of 7-Eleven,
we expect those amounts to be substantially less than those
earned historically. We have estimated that the
Vcomtm
Services generated an operating profit of $11.4 million for
the year ended December 31, 2006 and an operating loss of
$3.6 million for the nine months ended September 30,
2007. However, excluding the upfront placement fees, which are
not expected to continue in the future, the
Vcomtm
Services generated operating losses, based upon our analysis, of
$6.6 million and $7.8 million for the year ended
December 31, 2006 and nine months ended September 30,
2007, respectively. It is our expectation that the acquired
Vcomtm
operations will continue to generate operating losses subsequent
to the 7-Eleven ATM Transaction. However, we believe that the
right mix of services and locations, coupled with effective
targeted marketing strategies, could lead to improved financial
results for this portion of the acquired business, and we are,
therefore, currently working to restructure that portion of the
acquired business. In the event we are unable to improve the
financial results of the acquired
Vcomtm
operations, and we incur cumulative operating losses of
$10.0 million associated with providing the
Vcomtm
Services, including $1.5 million in contract termination
costs, our current intent is to terminate the
Vcomtm
Services and utilize the
Vcomtm
machines solely to provide traditional ATM services. See
Risk FactorsRisks Related to Our BusinessIn
connection with the
7-Eleven ATM
Transaction, we acquired advanced-functionality
Vcomtm
machines with significant potential for providing new services.
Failure to achieve market acceptance among users could lead to
continued losses from the
Vcomtm
Services, which could adversely affect our operating
results.
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We believe that the 7-Eleven ATM Transaction portfolio provides
us with substantial benefits and opportunities, including the
following:
Additional High-Volume, Prime Retail
Locations. The ATMs we acquired in the
7-Eleven ATM
Transaction averaged over 1,000 withdrawal transactions per
month during 2006, which compares favorably to the average of
404 withdrawal transactions per month for our existing ATM
portfolio during the same period.
Internal Growth Opportunities. We agreed to a
ten-year ATM placement agreement that will give us, subject to
certain conditions, the exclusive right to operate all ATMs and
Vcomtm
units in existing and future 7-Eleven store locations in the
U.S. during the term of the agreement. Additionally, with
7-Eleven being the largest convenience store operator in the
world (with over 33,200 locations worldwide), we believe
that our relationship with
7-Eleven may
afford us the opportunity to further expand internationally.
Bank Branding and Outsourcing
Opportunities. When combined with our existing
portfolio of ATMs, the approximately 5,500 ATM and
Vcomtm
units located in 7-Eleven store locations, which are currently
branded with the Citibank brand, bring the total number of our
Company-owned ATMs under bank branding arrangements to
approximately 9,500. We believe that the combined bank branded
portfolio, which is the largest of its kind in the industry,
will lead to future branding opportunities for many of the
unbranded retail locations remaining within our portfolio of
Company-owned ATMs.
Surcharge-Free Offering Opportunities. The
7-Eleven ATM portfolio currently participates in two
surcharge-free networks, the
CO-OP®
network, the nations largest surcharge-free network
devoted exclusively to credit unions, and FSCC, a cooperative
service organization providing shared branching services for
credit unions. We also believe the 7-Eleven ATM Transaction
provides opportunities to expand our surcharge-free network
offerings.
Advanced-Functionality Opportunities. The
7-Eleven ATM Transaction provides us with a unique opportunity
to participate in the advanced kiosk-based financial services
market within the U.S. through the
Vcomtm
Services. Such services may provide for additional growth
opportunities as additional merchants and financial institutions
seek to take advantage of these services.
Operational Synergies. We expect our extensive
industry experience and operational expertise as a low cost
provider to allow us to take advantage of certain operational
synergies that may be realized from the 7-Eleven ATM
Transaction, as existing contracts with service providers begin
to expire at the end of 2009. Furthermore, because of the nature
of such contracts, the initial integration of the acquired
7-Eleven Financial Services Business is not expected to
negatively impact our ongoing operations.
Other
Acquisitions
In addition to the 7-Eleven ATM Transaction, we have made 14
other acquisitions in prior years both in the United States and
internationally. These acquisitions included:
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In February 2006, we acquired a 51.0% ownership stake in CCS
Mexico, an independent ATM operator located in Mexico, for
approximately $1.0 million in cash consideration and the
assumption of approximately $0.4 million in additional
liabilities. At the time of the acquisition, CCS Mexico operated
approximately 300 ATMs.
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In December 2005, we acquired all of the outstanding shares of
ATM National, Inc., the owner and operator of the Allpoint
nationwide surcharge-free ATM network. The consideration for
such acquisition totaled $4.8 million.
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In May 2005, we purchased 100% of the outstanding shares of Bank
Machine (Acquisitions) Limited for approximately
$95.0 million. At the time of the acquisition, Bank
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Machine (Acquisitions) Limited operated approximately
1,000 ATMs in the United Kingdom.
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In April 2005, we acquired a portfolio of 330 ATMs,
primarily at BP Amoco locations throughout the midwest region,
for approximately $9.0 million in cash.
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In March 2005, we acquired a portfolio of 475 ATMs located
in the greater New York Metro area from BAS Communications for
approximately $8.2 million in cash.
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In June 2004, we acquired the ATM business owned by E*TRADE
Access, Inc. for $106.9 million in cash. At the time of the
acquisition, E*TRADE Access, Inc. operated 13,155 ATMs in
the United States. Historical audited financial statements for
this company (ATM Company) are included elsewhere
herein.
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We believe that this experience and our disciplined integration
approach reduces the risks associated with acquiring additional
portfolios of ATMs. Because we do not typically assume
significant numbers of employees nor import new operating
systems in connection with our ATM portfolio or asset
acquisitions, we believe such acquisitions have relatively low
integration/migration risk when compared to business
acquisitions (such as the 7-Eleven ATM Transaction). We also
believe our acquisition risk, for both ATM portfolio
acquisitions and business acquisitions, is somewhat reduced
because the financial performance of ATMs we acquire is
relatively predictable given our access to third-party data on
the transaction history and revenues of the ATMs we acquire.
This predictability is also enhanced by the well-understood
nature of our operating costs per machine and per transaction.
The scale of our operations allows us to significantly reduce
the overhead associated with acquired ATM portfolios as well as
reduce operating costs by taking advantage of our existing
vendor contracts. In addition, we have been able to successfully
grow several of our acquired ATM portfolios and businesses by
deploying additional ATMs under the merchant contracts
associated with such acquisitions. This has resulted in improved
operating cash flow and high returns on capital for several of
our transactions. For example, the current annual EBITDA on the
ATM business acquired from E*TRADE Access, Inc. is approximately
three times the annual EBITDA at the time of acquisition.
Our Products and
Services
We typically provide our leading merchant customers with all of
the services required to operate an ATM, which include
transaction processing, cash management, maintenance, and
monitoring. We believe our merchant customers value our high
level of service, our
24-hour per
day monitoring and accessibility, and that our U.S. ATMs
are on-line and able to serve customers an average of 98.5% of
the time. In connection with the operation of our ATMs and our
customers ATMs, we generate revenue on a per-transaction
basis from the surcharge fees charged to cardholders for the
convenience of using our ATMs and from interchange fees charged
to such cardholders financial institutions for processing
the ATM transactions. The following table provides detail
relating to the number of ATMs we owned and operated under our
various arrangements as of September 30, 2007:
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Company-
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Merchant-
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Owned
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Owned
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Total
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Number of ATMs
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19,649
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11,937
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31,586
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Percent of total ATMs
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62.2
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%
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37.8
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%
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100.0
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We generally operate our ATMs under multi-year contracts that
provide a recurring and stable source of transaction-based
revenue and typically have an initial term of five to seven
years. As of September 30, 2007, our contracts with our top
10 merchant customers had a weighted average remaining life
(based on revenues) of 8 years, including the ten-year
placement agreement we entered into with 7-Eleven in July 2007.
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Recently, we have entered into arrangements with financial
institutions to brand certain of our Company-owned ATMs. A
branding arrangement allows 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. Such an arrangement allows
a financial institution to rapidly increase its number of
branded ATM sites and improve their competitive position. Under
these arrangements, the branding institutions customers
are allowed to use the branded ATM 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 ATM. In
addition, we typically receive increased interchange revenue as
a result of increased usage of our ATMs by the branding
institutions customers and others who prefer to use a bank
branded ATM. We intend to pursue additional branding
arrangements as part of our growth strategy. Prior to 2006, we
had bank branding arrangements in place on less than 1,000 of
our Company-owned ATMs. However, as a result of our increased
sales efforts, the
7-Eleven ATM
Transaction, and financial institutions realizing the
significant benefits and opportunities afforded to them through
bank branding programs, we currently have branding arrangements
in place with 18 domestic financial institutions involving
approximately 9,500 Company-owned ATMs. The 7-Eleven ATM
Transaction added 5,500 of these ATMs, which are branded with
the Citibank brand.
Another type of surcharge-free program we offer in addition to
branding our ATMs is through our Allpoint and
MasterCard®
nationwide surcharge-free ATM networks. Under the Allpoint
network, financial institutions who are members of the network
pay us a fixed monthly fee per cardholder in exchange for us
providing their cardholders with surcharge-free access to most
of our domestic owned
and/or
operated ATMs. Under the
MasterCard®
network, we provide surcharge-free access to most of our
domestic owned
and/or
managed ATMs to cardholders of financial institutions who
participate in the network and who utilize a
MasterCard®
debit card. In return for providing this service, we receive a
fee from
MasterCard®
for each surcharge-free withdrawal transaction conducted on our
network. The Allpoint and
MasterCard®
networks offer attractive alternatives to financial institutions
that lack their own distributed ATM network. We acquired all of
the outstanding shares of ATM National, Inc., the owner and
operator of the Allpoint network, in December 2005. In September
2006, we implemented our surcharge-free network with
MasterCard®.
As part of the 7-Eleven ATM Transaction, we assumed additional
surcharge-free relationships with
CO-OP®,
the nations largest surcharge-free network for credit
unions, and FSCC, a cooperative service organization providing
shared branching services for credit unions, thus further
enhancing our surcharge-free offerings.
We have found that the primary factor affecting transaction
volumes at a given ATM is its location. Our strategy in
deploying our ATMs, particularly those placed under
Company-owned arrangements, is to identify and deploy ATMs 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 a prime example of the types of
locations that we seek when deploying our ATMs. In addition to
the 7-Eleven locations, we have also entered into multi-year
agreements with a number of other merchants, including A&P,
Albertsons, Chevron, Costco, CVS Pharmacy, Duane Reade,
ExxonMobil, Giant, Hess Corporation, Kroger, Rite Aid, Sunoco,
Target, Walgreens, and Winn-Dixie in the United States; Alfred
Jones, Martin McColl, McDonalds, The Noble Organisation, Odeon
Cinemas, Spar, Tates, and Vue Cinemas in the United Kingdom; and
Fragua and OXXO in Mexico. We believe that once a cardholder
establishes a pattern of using a particular ATM, the cardholder
will generally continue to use that ATM.
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Merchant
Customers
In the United States, we have contracts with approximately 40
major national and regional merchants, including convenience
stores, supermarkets, drug stores, and other high-traffic retail
chains, and ATMs in approximately 11,400 locations with
independent merchants. In the United Kingdom, we have contracts
with approximately 30 national and regional merchants and
approximately 600 independent merchants. In Mexico, a majority
of the ATMs currently deployed are with independent merchants,
though we have recently begun deploying ATMs with two merchants
that have retail locations throughout Mexico. Prior to the
7-Eleven ATM
Transaction, no single merchant customers ATM locations
generated fees that accounted for more than 5.0% of our total
revenues for the year ended December 31, 2006. As a result
of the
7-Eleven ATM
Transaction,
7-Eleven is
now the largest merchant customer in our portfolio, representing
approximately 35.8% and 33.6% of our total pro forma revenues
for the year ended December 31, 2006 and the nine months
ended September 30, 2007, respectively. The underlying
merchant agreement with
7-Eleven has
an initial term of 10 years from the effective date of the
acquisition. In addition to
7-Eleven,
our next four largest merchant customers are CVS, Walgreens,
Target and ExxonMobil, and they collectively generated 10.2% and
12.0% of our total pro forma revenues for the year ended
December 31, 2006 and nine months ended September 30,
2007, respectively.
The terms of our merchant contracts vary as a result of
negotiations at the time of execution. In the case of
Company-owned ATMs, which are typically deployed with our major
national and regional merchants, the contract terms vary, but
typically include the following:
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an initial term of five to seven years;
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exclusive deployment of ATMs at locations where we install an
ATM;
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our right to increase surcharge fees;
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our right to remove ATMs at underperforming locations without
having to pay a termination fee;
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in the United States, our right to terminate or remove ATMs or
renegotiate the fees payable to the merchant if surcharge fees
are generally reduced or eliminated by law; and
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provisions making the merchants fee dependent on the
number of ATM 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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Sales and
Marketing
Our sales and marketing team focuses principally on developing
new relationships with national and regional merchants as well
as on building and maintaining relationships with our existing
merchants. The team is organized into groups that specialize in
marketing to specific merchant industry segments, which allows
us to tailor our offering to the specific requirements of each
merchant customer. In addition to the merchant-focused sales and
marketing group, we have a sales and marketing group that is
focused on developing and managing our relationships with
financial institutions, as we look to expand the types of
services that we
108
offer to such institutions. As of September 30, 2007, our
sales and marketing team was composed of 50 employees, of
which those who are exclusively focused on sales typically
receive a combination of incentive-based compensation and a base
salary.
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 placements.
Subsequent to the 7-Eleven ATM Transaction, our sales and
marketing team members are now working to strengthen our
relationship with 7-Eleven, as well as our relationships with
Citibank and other branding partners. Additionally, our sales
and marketing team is focused on increasing the number of ATMs
we have deployed in the United Kingdom and Mexico by expanding
the relationships with our existing merchants and by targeting
potential new merchants.
Technology
Our technology and operations platform consists of ATM
equipment, ATM and internal network infrastructure (including
in-house ATM transaction processing capabilities), cash
management, and customer service. This platform is designed to
provide our merchant customers with what we believe is a high
quality suite of services.
ATM Equipment. In the United States and
Mexico, we purchase ATMs from national manufacturers, including
NCR, Diebold, Triton Systems, and Wincor Nixdorf and place them
in our merchant customers locations. The portfolio of
equipment we purchased in the 7-Eleven ATM Transaction is
comprised of traditional ATMs manufactured by NCR and Diebold
and advanced
Vcomtm
units manufactured by NCR. The wide range of advanced technology
available from these ATM manufacturers provides our merchant
customers with advanced features and reliability through
sophisticated diagnostics and self-testing routines. The
different machine types can all perform basic functions, such as
dispensing cash and displaying account information. However,
some of our ATMs are modular and upgradeable so they can be
adapted to provide additional services in response to changing
technology and consumer demand. For example, a portion of our
ATMs can be upgraded to accept deposits through the installation
of additional hardware and software components.
We operate three basic types of ATMs in the United Kingdom:
(1) convenience, which are internal to a
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. The ATMs are
principally manufactured by NCR.
Transaction Processing. We place significant
emphasis on providing quality service with a high level of
security and minimal interruption. We have carefully selected
support vendors to optimize the performance of our ATM network.
In addition, our third-party transaction processors provide
sophisticated security analysis and monitoring 24 hours a
day.
In late 2006, we implemented our own in-house transaction
processing operation, which is based in Dallas, Texas. This
initiative enables us to monitor transactions on our ATMs and to
control the flow and content of information on the ATM screen.
As of October 31, 2007, we had converted approximately
10,000 ATMs over to our in-house transaction processing
switch, and we currently expect this initiative to be completed
by December 31, 2008. As with our existing ATM network
operation, we have carefully selected support vendors to help
ensure the security and continued performance of such operation.
In conjunction with the 7-Eleven ATM Transaction, we assumed a
master ATM management agreement with Fiserv under which Fiserv
currently provides a number of ATM-related services to the
7-Eleven ATMs, including transaction processing, network
hosting, network sponsorship, maintenance, cash management, and
cash replenishment. Additionally, similar to our in-house
transaction processing switch, the
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7-Eleven
Financial Services Business had its own processing operations
that it used to process transactions for the 2,000
Vcomtm
units. As with our in-house processing operation,
carefully-selected support vendors will continue to help ensure
the security and continued performance of the acquired
processing operation. We will continue to operate both our
in-house processing switch and the acquired processing switch
until such time as the 7-Eleven Financial Services Business
operations can be fully integrated into our current operations.
Internal Systems. Our internal systems,
including our in-house processing switch, include multiple
layers of security to help protect them from unauthorized
access. Protection from external sources is provided by the use
of hardware and software-based security features that isolate
our sensitive systems. We also use commercially-available
encryption technology to protect communications. On our internal
network, we employ user authentication and anti-virus tools at
multiple levels. These systems are protected by detailed
security rules to limit access to all critical systems, and, to
our knowledge, our security systems have never been breached.
Our systems components are directly accessible by a limited
number of employees on a need-only basis. Our gateway
connections to our EFT network service providers provide us with
real-time access to transaction details, such as cardholder
verification, authorization, and funds transfer. We have
installed these communications circuits with backup connectivity
to help protect us from telecommunications problems in any
particular circuit.
We use commercially-available and custom software that
continuously monitors the performance of the ATMs in our
network, including details of transactions at each ATM and
expenses relating to that ATM, such as fees payable to the
merchant. This software permits us to generate detailed
financial information for each ATM location, allowing us to
monitor each locations profitability. We analyze
transaction volume and profitability data to determine whether
to continue operating at a given site, how to price various
operating arrangements with merchants and branding arrangements,
and to create a profile of successful ATM locations so as to
assist us in deciding the best locations for additional ATM
deployments.
Cash Management. We have our own internal cash
management department that utilizes data generated by our cash
providers, internally generated data, and a proprietary
methodology to confirm daily orders, audit delivery of cash to
armored couriers and ATMs, monitor cash balances for cash
shortages, coordinate and manage emergency cash orders, and
audit costs from both armored couriers and cash providers.
Our cash management department uses commercially-available
software and proprietary analytical models to determine the
necessary fill frequency and load amount for each ATM. Based on
location, day of the week, upcoming holidays and events, and
other factors, we project cash requirements for each ATM on a
daily basis. After receiving a cash order from us, the cash
provider forwards the request to its vault location nearest to
the applicable ATM. Personnel at the vault location then arrange
for the requested amount of cash to be set aside and made
available for the designated armored courier to access and
subsequently transport to the ATM.
Customer Service. We believe one of the
factors that differentiates us from our competitors is our
customer service responsiveness and proactive approach to
managing any ATM downtime. We use an advanced software package
that monitors the performance of our Company-owned ATMs 24 hours
a day for service interruptions and notifies our maintenance
vendors for prompt dispatch of necessary service calls. The
3,500 traditional ATMs acquired in the
7-Eleven ATM
Transaction will continue to be monitored and serviced under the
Fiserv ATM management agreement. Additionally, the 2,000
Vcomtm
units acquired will continue to be monitored under a third-party
service agreement.
Finally, we use a commercially-available software package to
maintain a database of transactions made on and performance
metrics for all of our ATM locations. This data is aggregated
into individual merchant customer profiles that are readily
accessible by our
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customer service representatives and managers. We believe our
proprietary database enables us to provide superior quality and
accessible and reliable customer support.
Primary Vendor
Relationships
To maintain an efficient and flexible operating structure, we
outsource certain aspects of our operations, including
transaction processing, cash management, and maintenance. Due to
the number of ATMs we operate, we believe we have obtained
favorable pricing terms from most of our major vendors. We
contract for the provision of the services described below in
connection with our operations.
Transaction Processing. We contract with and
pay fees to third parties who process transactions originating
from our ATMs and that are not processed directly through our
own in-house processing switch. These processors communicate
with the cardholders financial institution through an EFT
network to obtain transaction authorization and settle
transactions. These transaction processors include Star Systems,
Fiserv, Lynk and Elan Financial Services (formerly Genpass) in
the United States, LINK and Euronet in the United Kingdom, and
Promocion y Operacion S.A. (Prosa) in Mexico.
Although the Company has recently moved towards in-house
processing, such processing efforts are primarily focused on
controlling the flow and content of information on the ATM
screen. As such, we expect to continue to rely on third party
service providers to handle our connections to the EFT networks
and to perform selected fund settlement and reconciliation
processes.
Transactions originating on traditional ATMs acquired in the
7-Eleven ATM Transaction will continue to be processed under the
ATM management agreement with Fiserv, who maintains
relationships with the major U.S. networks. Transactions
originating on a
Vcomtm
unit will continue to be processed on the 7-Eleven Financial
Services Business in-house processing switch, which we also
acquired as a part of the acquisition.
EFT Network Services. Our transactions are
routed over various EFT networks to obtain authorization for
cash disbursements and to provide account balances. Such
networks include Star, Pulse, NYCE, Cirrus, and Plus in the
United States; LINK in the United Kingdom; and Prosa 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 ATMs to cardholders by
participating in as many EFT networks as practical. The 3,500
traditional ATMs and 2,000
Vcomtm
units acquired in the
7-Eleven ATM
Transaction will continue to access the networks under the
arrangements Fiserv has with the networks.
ATM Equipment. As previously noted, we
purchase substantially all of our ATMs from national
manufacturers, including NCR, Diebold, Triton Systems, and
Wincor Nixdorf. The large quantity of ATMs that we purchase from
these manufacturers enables us to receive favorable pricing and
payment terms. In addition, we maintain close working
relationships with these manufacturers in the course of our
business, allowing us to stay informed regarding product updates
and to minimize technical problems with purchased equipment.
Under our Company-owned arrangements, we deploy high quality,
multi-function ATMs. Under our merchant-owned arrangements, we
deploy ATMs that are cost-effective and appropriate for the
merchant. These are purchased from a variety of ATM vendors.
Although we currently purchase a substantial majority of our
ATMs from NCR, we believe our relationships with our other ATM
suppliers are good and that we would be able to purchase the
ATMs we require for our Company-owned operations from other ATM
manufacturers if we were no longer able to purchase ATMs from
NCR.
ATM Maintenance. In the United States, we
typically contract with third-party service providers for the
provision of
on-site
maintenance services. We have multi-year maintenance agreements
with Diebold, NCR, and Pendum (formerly EFMARK) in the United
States. In the United Kingdom, maintenance services are provided
by in-house technicians. In Mexico, during
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2006, such maintenance was provided by in-house technicians or
local third-party contractors. However, given our expected
growth in the region, we entered into a multi-year agreement
with Diebold in the first quarter of 2007 to provide all
maintenance services for our ATMs in Mexico.
In connection with the 7-Eleven ATM Transaction, we assumed a
number of multi-year, third-party service contracts previously
entered into by the 7-Eleven Financial Services Business.
Historically, Fiserv has contracted with NCR to provide
on-site
maintenance services to the acquired ATMs and
Vcomtm
units. We will continue to operate under the current terms of
these agreements until such time as they are renegotiated or
expire.
Cash Management. We obtain cash to fill our
Company-owned, and in some cases merchant-owned, ATMs under
arrangements with our cash providers, which consist of Bank of
America, Wells Fargo, and PDNB in the United States, ALCB in the
United Kingdom, and Bansi in Mexico. In the United States and
United Kingdom, we currently pay a monthly fee on the average
amount outstanding to our primary vault cash providers under a
formula based on LIBOR. For the ATMs acquired in the 7-Eleven
ATM Transaction, we pay a monthly fee for the vault cash
utilized in the 5,500 ATMs and
Vcomtm
units under a floating rate formula based on the federal funds
effective rate. In Mexico, we pay a monthly fee for this cash
under a formula based on the Mexican Interbank Rate. At all
times, the cash legally belongs to the cash providers, and we
have no access or right to the cash.
We also contract with third parties to provide us with cash
management services, which include reporting, armored courier
coordination, cash ordering, cash insurance, reconciliation of
ATM cash balances, ATM cash level monitoring, and claims
processing with armored couriers, financial institutions, and
processors.
As of September 30, 2007, we had $740.6 million in
cash in our domestic ATMs under these arrangements, of which
approximately 50.8% was provided by Bank of America under a
vault cash agreement that runs until October 2008 and 48.5% was
provided by Wells Fargo under a vault cash agreement that runs
until July 2009 for the operation of the acquired 5,500 ATMs and
Vcomtm
units. In the United Kingdom, the balance of cash held in our
ATMs as of September 30, 2007, was approximately
$140.4 million. In Mexico, our balance totaled
approximately $6.3 million as of September 30, 2007.
Cash Replenishment. We contract with armored
courier services to transport and transfer cash to our ATMs. We
use leading armored couriers such as Brinks Incorporated
(Brinks), Loomis, Fargo & Co., and
Pendum (formerly EFMARK, Premium Armored Services, Inc., and
Bantek West, Inc.) in the United States; and Brinks, Group
4 Securicor, and Securitas in the United Kingdom. Under these
arrangements, the armored couriers pick up the cash in bulk and,
using instructions received from our cash providers, prepare the
cash for delivery to each ATM on the designated fill day.
Following a predetermined schedule, the armored couriers visit
each location on the designated fill day, load cash into each
ATM by either adding additional cash into a cassette or by
swapping out the remaining cash for a new fully loaded cassette,
and then balance the machine and provide cash reporting to the
applicable cash provider. In Mexico, we utilize a flexible
replenishment schedule, which enables us to minimize our cash
inventory by allowing the ATM to be replenished on an as
needed basis and not on a fixed recurring schedule. Cash
needs are forecasted in advance and the ATMs are closely
monitored on a daily basis. Once a terminal is projected to need
cash within a specified number of days, the cash is procured and
the armored vendor is scheduled so that the terminal is loaded
approximately one day prior to the day that it is expected to
run out of cash. Our primary armored courier service providers
in Mexico are Compañia Mexicana de Servicio de Traslado de
Valores (Cometra) and Panamericano.
112
Seasonality
In the United States and Mexico, our overall business is
somewhat seasonal in nature with generally fewer transactions
occurring in the first quarter. We typically experience
increased transaction levels during the holiday buying season at
our ATMs located in shopping malls and lower volumes in the
months following the holiday season. Similarly, we have seen
increases in transaction volumes in the spring at our ATMs
located near popular spring-break destinations. Conversely,
transaction volumes at our ATMs located in regions affected by
strong winter weather patterns typically decline as a result of
decreases in the amount of consumer traffic through certain
locations in which we operate our ATMs. These declines, however,
have been offset somewhat by increases in the number of our ATMs
located in shopping malls and other retail locations that
benefit from increased consumer traffic during the holiday
buying season. We expect these location-specific and regional
fluctuations in transaction volumes to continue in the future.
Finally, we anticipate that the ATMs acquired in the 7-Eleven
ATM Transaction will have transaction patterns similar to our
other company-owned ATMs located in convenience stores, which
typically experience lower transaction levels in winter months.
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 in each of our markets and, thus, monthly
transaction volumes will fluctuate based on the number of
weekend days in a given month. However, we, like other
independent ATM operators, experience a drop in the number of
transactions we process during the Christmas season due to
consumers greater tendency to shop in the vicinity of free
ATMs and our closure of some of our ATM sites over the Christmas
break. We expect these location-specific and regional
fluctuations in transaction volumes to continue in the future.
Competition
We compete with financial institutions and other independent ATM
companies for additional ATM placements, new merchant accounts,
and acquisitions. Several of our competitors, namely national
financial institutions, are larger and more established. While
these entities may have fewer ATMs than we do, they have greater
financial and other resources than us. For example, our major
domestic competitors include banks such as Bank of America,
US Bancorp, Wachovia, and PNC Corp. as well as independent
ATM operators such as ATM Express, Innovus, and TRM Corp. In the
United Kingdom, we compete with several large non-bank ATM
operators, including Cardpoint, Notemachine, and Paypoint, as
well as banks such as the Royal Bank of Scotland, Barclays, and
Lloyds, among others. In Mexico, we compete primarily with
national and regional financial institutions, including Banamex,
Bancomer, and HSBC. Although the independent ATM market is still
relatively undeveloped in Mexico, we have recently seen a number
of small ATM operators initiate operations. These operators,
which are typically known by the names of their sponsoring
banks, include Banco Inbursa, Afirme, and Bajio.
Despite the level of competition we face, many of our
competitors have not historically had a singular focus on ATM
management. As a result, we believe our focus solely on ATM
management and related services gives us a significant
competitive advantage. In addition, we believe the scale of our
extensive ATM network and our focus on customer service also
provide significant competitive advantages.
113
Government and
Industry Regulation
United
States
Our principal business, ATM network ownership and operation, is
not subject to significant government regulation, though we are
subject to certain industry regulations. Furthermore, various
aspects of our business are subject to state regulation. Our
failure to comply with applicable laws and regulations could
result in restrictions on our ability to provide our products
and services in such states, as well as the imposition of civil
fines.
Americans With Disabilities Act
(ADA). The ADA currently prescribes
provisions that ATMs be made accessible to and independently
usable by individuals who are visually-impaired. The Department
of Justice may adopt new accessibility guidelines under the ADA
that will include provisions addressing ATMs and how to make
them more accessible to the disabled. Under the proposed
guidelines that have been published for comment but not yet
adopted, ATM height and reach requirements would be shortened,
keypads would be required to be laid out in the manner of
telephone keypads, and ATMs would be required to possess speech
capabilities, among other modifications. If adopted, these new
guidelines would affect the manufacture of ATM equipment going
forward and could require us to retrofit ATMs in our network as
those ATMs are refurbished or updated for other purposes.
Additionally, recently 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 laws, and, although
these new rules have not yet been adopted by the Department of
Justice, we currently plan to make substantially all of our
Company-owned ATMs voice-enabled in conjunction with our
security upgrade efforts (discussed below) in 2007.
Additionally, in connection with our E*TRADE Access acquisition,
we assumed obligations related to litigation instituted by the
National Federation of the Blind relating to these matters.
However, in June 2007, the parties to this litigation completed
and executed a settlement agreement, which we believe will be
approved by the court. If approved, we believe this settlement
will be beneficial as it imposes no unreasonable requirements
upon us in the way of the deployment of additional ATMs, would
not result in significant additional costs over our current ADA
upgrade effort, and would serve to end this litigation. For
additional information on these matters, see Legal
Proceedings below.
Rehabilitation Act. On November 26, 2006,
a U.S. District Judge ruled that the
United States currencies (as currently designed)
violate the Rehabilitation Act, a law that prohibits
discrimination in government programs on the basis of
disability, as the paper currencies issued by the U.S. are
identical in size and color, regardless of denomination. Under
the current ruling, the U.S. Treasury Department has been
ordered to develop ways in which to differentiate paper
currencies such that an individual who is visually-impaired
would be able to distinguish between the different
denominations. In response to the November 26, 2006 ruling,
the Justice Department has filed an appeal with the
U.S. Court of Appeals for the District of Columbia Circuit,
requesting that the decision be overturned on the grounds that
varying the size of denominations could cause significant
burdens on the vending machine industry and cost the Bureau of
Engraving and Printing an initial investment of
$178.0 million and up to $50.0 million in new printing
plates. While it is still uncertain at this time what the
outcome of the appeals process will be, in the event the current
ruling is not overturned, participants in the ATM industry
(including us) may be forced to incur significant costs to
upgrade current machines hardware and software components.
Encrypting Pin Pad (EPP) and
Triple-DES. Data
encryption makes ATMs more tamper-resistant. Two of the more
recently developed advanced data encryption methods are commonly
referred to as EPP and
Triple-DES.
In 2005, we adopted a policy that any new ATMs that
114
we acquire from a manufacturer must be both EPP and
Triple-DES
compliant. Because the EFT networks are requiring that all ATMs
be Triple-DES compliant by the end of 2007, we have budgeted
approximately $14.0 million to accomplish this encryption
upgrade for all of our Company-owned ATMs by the end of this
year. We believe this time frame will be acceptable to the major
processing networks.
Surcharge Regulation. The imposition of
surcharges is not currently subject to federal regulation. There
have been, however, various state and local efforts to ban or
limit surcharges, generally as a result of activities of
consumer advocacy groups that believe that surcharges are unfair
to cardholders. Generally, United States federal courts have
ruled against these efforts. We are not aware of any existing
surcharging bans or limits applicable to us in any of the
jurisdictions in which we currently do business. Nevertheless,
there can be no assurance that surcharges will not be banned or
limited in the cities and states where we operate. Such a ban or
limit would have a material adverse effect on us and other ATM
operators.
EFT Network Regulations. EFT regional networks
have adopted extensive regulations that are applicable to
various aspects of our operations and the operations of other
ATM network operators. The Electronic Fund Transfer Act,
commonly known as Regulation E, is the major source of EFT
network regulations. The regulations promulgated under
Regulation E establish the basic rights, liabilities, and
responsibilities of consumers who use electronic fund transfer
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 has required
compliance with an encryption standard called Europay,
MasterCard, Visa, or EMV. The EMV standard provides
for the security and processing of information contained on
microchips imbedded in certain debit and credit cards, known as
smart cards. As of September 30, 2007, all of
our ATMs in the United Kingdom were EMV compliant, except for
ATM transactions that are originated through MasterCard branded
credit cards. We expect that we will achieve EMV compliance for
such cards in January 2008 and have taken precautionary measures
to prevent further loss in the interim. As a result of these
compliance standards, our liability for fraudulent transactions
conducted on our ATMs in the United Kingdom should be
substantially reduced.
Additionally, the Treasury Select Committee of the House of
Commons heard evidence in 2005 from interested parties with
respect to surcharges in the ATM industry. This committee was
formed to investigate 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 U.K. government did sponsor an ATM task
force to look at social exclusion in relation to ATM services.
As a result of the task forces findings, approximately 600
additional free-to-use ATMs (to be provided by multiple ATM
deployers) will be installed in low income areas throughout the
United Kingdom during 2007. While this is
115
less than a two percent increase in free-to-use ATMs through the
U.K., there is no certainty that other similar proposals will
not be made and accepted in the future.
Mexico
The regulation of ATMs in Mexico is controlled by the Secretary
of Treasury and the Central Bank and is similar to that of the
United States in that the ATM operator must have a sponsoring
bank, specific signage is required to be displayed on the
exterior of the ATM, and certain information regarding
surcharging is required to be displayed on the screen of the
ATM. Other requirements like EPP and
Triple-DES
compliant upgrades are driven by global industry standards.
Legal
Proceedings
National Federation of the Blind
(NFB). In connection with our
acquisition of the ATM business of E*TRADE Access, we assumed
E*TRADE Access interests and liability for a lawsuit
instituted in the United States District Court for the District
of Massachusetts (the Court) by the NFB, the
NFBs Massachusetts chapter, and several individual blind
persons (collectively, the Private Plaintiffs) as
well as the Commonwealth of Massachusetts with respect to claims
relating to the alleged inaccessibility of ATMs for those
persons who are visually impaired. After the acquisition of the
E*TRADE Access ATM portfolio, the Private Plaintiffs named us as
a co-defendant with E*TRADE Access and E*TRADE Access
parentE*TRADE Bank, and the scope of the lawsuit has
expanded to include both E*TRADE Access ATMs as well as
our pre-existing ATM portfolio.
In June 2007, the parties completed and executed a settlement
agreement, which was approved by the Court on December 4,
2007. The principal objective of the settlement is for 90% of
all transactions (as defined in the settlement agreement)
conducted on our Company-owned and merchant-owned ATMs by
July 1, 2010 to be conducted at ATMs that are voice-guided.
In an effort to accomplish such objective, we are subject to
numerous interim reporting requirements and a one-time
obligation to market voice-guided ATMs to a subset of our
merchants that do not currently have voice-guided ATMs. Finally,
the settlement requires us to pay $900,000 in attorneys
fees to the NFB and to make a $100,000 contribution to the
Massachusetts local consumer aid fund. These amounts were
fully reserved for as of September 30, 2007. We do not
believe that the settlement requirements outlined above will
have a material impact on our financial condition or results of
operations.
Other Matters. In June 2006, Duane Reade, Inc.
(Customer), one of our merchant customers, filed a
complaint in the United States District Court for the Southern
District of New York (the Federal Action). The
complaint, which was formally served to us in September 2006,
alleged that we had breached an ATM operating agreement between
the Customer and us by failing to pay the Customer the proper
amount of fees under the agreement. The Customer is claiming
that it is owed no less than $600,000 in lost revenues,
exclusive of interests and costs, and projects that additional
damages will accrue to them at a rate of approximately $100,000
per month, exclusive of interest and costs. As the term of our
operating agreement with the Customer extends to December 2014,
the Customers claims could exceed $12.0 million. On
October 6, 2006, we filed a petition in the District Court
of Harris County, Texas, seeking a declaratory judgment that we
had not breached the ATM operating agreement. On
October 10, 2006, the Customer filed a second complaint,
this time in New York State Supreme Court, alleging the same
claims it had alleged in the Federal Action. Subsequently, the
Customer withdrew the Federal Action because the federal court
did not have subject matter jurisdiction. Additionally, we have
voluntarily dismissed the Texas lawsuit, electing to litigate
the above-described claims in the New York State Supreme Court.
116
In response to a motion for summary judgment filed by the
Customer and a cross-motion filed by us, the New York State
Supreme Court ruled on September 21, 2007 that our
interpretation of the ATM operating agreement was the
appropriate interpretation and expressly rejected the
Customers proposed interpretations. In the event the
Customer appeals this ruling, we will continue our aggressive
defense of this lawsuit. Further, we believe that the ultimate
resolution of this dispute will not have a material adverse
impact on our financial condition or results of operations.
In March 2006, we filed a complaint in the United States
District Court in Portland, Oregon, against CGI, Inc.
(Distributor), a distributor for the E*Trade
Access ATM business we acquired. Our complaint, alleged
that the Distributor breached its agreement with us by directly
competing with us on certain merchant accounts. The Distributor
denied such violations, alleging that an oral modification of
its distributor agreement with E*Trade permitted such
activities, and initiated a counter-claim for alleged
under-payments by us. We expressly denied the Distributors
allegations. On July 31, 2007, we executed a settlement
agreement wherein neither party admitted any wrongdoing, all
differences were resolved, and both parties released each other
from all claims made in the lawsuit. In connection with this
settlement, the distributor agreement was re-instated in a
modified form to, among other things, clarify the
Distributors non-compete obligations. Additionally, the
settlement provided for a nominal payment to the Distributor
relating to payments claimed under the distributor agreement.
Subsequent to the execution of the settlement agreement, both
parties have operated under the revised distributorship
agreement without any material issues or disputes.
We are also subject to various legal proceedings and claims
arising in the ordinary course of our business. Additionally,
the 7-Eleven Financial Services Business we acquired is subject
to various legal claims and proceedings in the ordinary course
of its business. We do 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 September 30, 2007, we had 370 employees. None
of our employees is represented by a union or covered by a
collective bargaining agreement. We believe that our relations
with our employees are good. In conjunction with the 7-Eleven
ATM Transaction, 26 employees of the 7-Eleven Financial Services
Business became employees of Cardtronics.
Facilities
Our principal executive offices are located at 3110 Hayes Road,
Suite 300, Houston, Texas 77082, and our telephone number
is
(281) 596-9988.
We lease approximately 26,000 square feet of space under
our Houston office lease and approximately 30,000 square
feet in warehouse space in Houston, Texas. We also lease
approximately 15,000 square feet of office space in
buildings near our principal executive offices in Houston,
Texas. Furthermore, we lease approximately 2,500 square
feet of office space in Bethesda, Maryland, where we manage our
Allpoint surcharge-free network operations, and
2,800 square feet of office space in Carrollton, Texas,
where our in-house processing operations are based. In
connection with the 7-Eleven ATM Transaction, we leased an
additional 12,000 square feet of office space in the Dallas
area.
In addition to our domestic office space, we lease approximately
6,200 square feet of office space in Hatfield,
Hertfordshire, England and approximately 2,400 square feet
of office space in Mexico City, Mexico. Our facilities are
leased pursuant to operating leases for various terms. We
believe that our leases are at competitive or market rates and
do not anticipate any difficulty in leasing suitable additional
space upon expiration of our current lease terms.
117
Directors and
Executive Officers
Board of
Directors
Board Composition. Our existing Board of
Directors consists of nine individuals designated in accordance
with the Companys investors agreement. We anticipate that
four of our current directors (Messrs. Brazelton, Clinard,
Delnevo, and Kafker) will resign following the pricing of this
offering and that we will appoint two additional independent
directors following the closing of this offering, as described
below. See Certain Relationships and Related Party
Transactions Investors Agreement for
additional information about the investors agreement.
Our third amended and restated certificate of incorporation and
our amended and restated bylaws will provide for a classified
board of directors consisting of three classes of directors,
each serving staggered three-year terms. As a result,
stockholders will elect a portion of our board of directors each
year. Class I directors terms will expire at the
annual meeting of stockholders to be held in 2008, Class II
directors terms will expire at the annual meeting of
stockholders to be held in 2009, and Class III
directors terms will expire at the annual meeting of
stockholders to be held in 2010. The Class I directors will
be Messrs. Barone and Diaz, the Class II directors will be
the two additional independent directors appointed following the
closing of this offering, and the Class III directors will
be Messrs. Antonini, Lummis and Wilson. At each annual meeting
of stockholders held after the initial classification, the
successors to directors whose terms will then expire will be
elected to serve from the time of election until the third
annual meeting following election. The division of our board of
directors into three classes with staggered terms may delay or
prevent a change of our management or a change in control. See
Description of Capital Stock Certain
Provisions of Our Certificate of Incorporation and
Bylaws Election and Removal of Directors.
The following table sets forth the name, age, and the position
of each of the person who was serving as a Director as
September 30, 2007:
|
|
|
|
|
Name
|
|
Age
|
|
Fred R. Lummis
|
|
|
54
|
|
Robert P. Barone
|
|
|
69
|
|
Frederick W. Brazelton
|
|
|
36
|
|
Ralph H. Clinard
|
|
|
74
|
|
Jorge M. Diaz
|
|
|
43
|
|
Roger B. Kafker
|
|
|
45
|
|
Michael A.R. Wilson
|
|
|
40
|
|
Jack Antonini
|
|
|
54
|
|
Ronald Delnevo
|
|
|
52
|
|
On January 11, 2007, Ronald D. Coben resigned from our
Board of Directors in order to devote his full attention to a
new position that he accepted with a separate publicly-traded
company. Mr. Coben served on our audit committee, and his
resignation was not the result of any disagreement with us.
The following biographies describe the business experience of
the members of our Board of Directors:
Fred R. Lummis has served as a Director and Chairman of
the Board since June 2001. 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 the managing partner of
The CapStreet Group, LLC, CapStreet II, L.P., and CapStreet
Parallel II, LP. Mr. Lummis still serves as a senior
advisor to The
118
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.
Robert P. Barone has served as a Director since September
2001. Mr. Barone has more than 40 years of sales,
marketing, and executive leadership experience from the various
positions he has held at Diebold, NCR, Xerox, and the Electronic
Funds Transfer Association. Since December 1999, Mr. Barone
has served as a consultant for SmartNet Associates, Inc., a
private consulting firm. Additionally, 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, he served as Board
Vice-Chairman, President, and Chief Operating Officer at
Diebold. He 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 the Electronic Funds Transfer Association,
Mr. Barone is now Chairman Emeritus of the Electronic Funds
Transfer Association.
Frederick W. Brazelton has served as a Director since
June 2001. Mr. Brazelton is a co-founder and President of
Platform Partners, LLC. Prior to co-founding Platform Partners
in 2006, Mr. Brazelton was a partner of The CapStreet
Group, LLC, which he joined in August 2000. From July 1996 to
July 1998, Mr. Brazelton worked for Hicks, Muse,
Tate & Furst, a private equity firm in Dallas, and
from June 1994 to June 1995, he worked for Willis,
Stein & Partners, a private equity firm in Chicago. He
holds a Bachelor of Business Administration from the Business
Honors Program at the University of Texas at Austin and a
Masters of Business Administration degree from Stanford Graduate
School of Business. Mr. Brazelton also serves on the Board
of Directors of TRE Financial Services, LLC, a tax software
company, and Encore FBO, LLC, a privately owned network of fixed
base operators serving the airline and general aviation
industries.
Ralph H. Clinard has served as a Director since June
2001. Mr. Clinard founded the predecessor to Cardtronics in
1989 and was with the Company as President and Chief Executive
Officer until he retired in January 2003. Prior to founding our
predecessor, Mr. Clinard served with Exxon Corporation, an
integrated oil company, working in various positions for almost
30 years. Mr. Clinard holds a Bachelor of Science
degree in mathematics from Muskingum College and a Bachelor of
Science degree in mechanical engineering from Pennsylvania State
University. Mr. Clinard is currently retired, and his son,
Michael Clinard, serves as the Companys Chief Operating
Officer.
Jorge M. Diaz has served as a Director since December
2004. Mr. Diaz has served as President and Chief Executive
Officer of Personix, a division of Fiserv, since April 1994. In
January 1985, Mr. Diaz co-founded National Embossing
Company, a predecessor company to Personix. Mr. Diaz sold
National Embossing Company to Fiserv in April 1994.
Roger B. Kafker has served as a Director since February
2005. Mr. Kafker is a Managing Director at TA Associates
and concentrates on management-led buyouts and recapitalizations
in growth service businesses in the financial, consumer, and
healthcare services industries. He currently serves as a
Director of Clayton Holdings, CompBenefits Corporation,
K2 Advisors LLC, and Preferred Freezer Services.
Mr. Kafker previously served on the Boards of Directors of
Affiliated Managers Group, Allegis Realty Investors (now UBS
Realty Investors), And 1, ANSYS, Boron, LePore &
Associates, Cupertino Electric, EYP Mission
119
Critical Facilities, Florida Career College, HVL, Monarch Dental
Corporation, and Thomson Advisory Group (now PIMCO Advisors).
Prior to joining TA Associates in 1989, he was employed by
Bankers Trust Company of New York, where he worked on
leveraged acquisitions. Mr. Kafker received a BA degree,
magna cum laude, Phi Beta Kappa, in History from Haverford
College and a Masters of Business Administration degree, with
Honors, from the Harvard Business School.
Michael A.R. Wilson has served as a Director since
February 2005. Mr. Wilson is a Managing Director at TA
Associates where he focuses on growth investments and leveraged
buyouts of financial services, business services, and consumer
products companies. He currently serves on the Boards of
Advisory Research, Inc., EYP Mission Critical Facilities,
Jupiter Investment Group, K2 Advisors LLC, and Numeric
Investors. Prior to joining TA Associates in 1992,
Mr. Wilson was a Financial Analyst in Morgan Stanleys
Telecommunications Group. In 1994, he 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 BA degree, with Honors, in Business
Administration from the University of Western Ontario and a
Masters of Business Administration degree, with Distinction,
from the Harvard Business School.
The biographies of Jack Antonini, our Chief Executive Officer
and President, and Ronald Delnevo, Managing Director of Bank
Machine, are included under the Executive Officers
section below.
Board
Independence
The listing requirements of The Nasdaq Stock Market LLC
(Nasdaq) require that our Board be composed of a
majority of independent directors within one year of the listing
of our common stock on Nasdaq. Accordingly, we intend to appoint
additional independent directors to our board of directors
following the completion of this offering. The Board has
reviewed the independence of our directors using the
independence standards of Nasdaq and, based on this review, has
determined that Messrs. Barone, Lummis, and Wilson are
independent within the meaning of the Nasdaq listing standards
currently in effect. We expect that any additional directors
will qualify as independent for purposes of serving on our Board.
Committees of
the Board of Directors
In accordance with Nasdaq rules, we will maintain an audit
committee, a compensation committee, and a nominating and
governance committee.
Following the pricing of this offering, the Board will appoint
members to each of our audit committee, compensation committee,
and nominating committee that are independent in accordance with
Nasdaq listing standards and the requirements of the SEC.
Audit committee. Following the pricing of this
offering, the members of the audit committee will consist of
Messrs. Barone, Lummis, and Wilson. Messrs. Lummis and
Wilson intend to resign as audit committee members upon the
appointment of the two additional independent directors, who
will become members of the audit committee upon election. On an
annual basis, the audit committee (i) selects, on behalf of
our Board of Directors, an independent public accounting firm to
be engaged to audit our financial statements,
(ii) discusses with the independent auditors their
independence, (iii) reviews and discusses the audited
financial statements with the independent auditors and
management, and (iv) recommends to our Board of Directors
whether such audited financials should be included in our Annual
Report on
Form 10-K
to be filed with the SEC.
In compliance with Nasdaq requirements and SEC regulations, a
majority of the directors on our audit committee will be
independent within 90 days of the effectiveness of the
120
registration statement relating to this offering and, within one
year of effectiveness, all directors on the audit committee will
be independent.
Compensation Committee. Following the pricing
of this offering, the members of the compensation committee will
consist of Messrs. Diaz, Lummis, and Wilson. The compensation
committee reviews and either approves, on behalf of our Board of
Directors, or recommends to the Board of Directors for approval
(i) the annual salaries and other compensation of our
executive officers and (ii) individual stock and stock
option grants. The compensation committee also provides
assistance and recommendations with respect to our compensation
policies and practices and assists with the administration of
our compensation plans. We expect that each member of the
compensation committee will be independent as
defined by the Nasdaq listing standards.
Nominating and Governance Committee. Following
the pricing of this offering, the nominating and governance
committee will consist of Mr. Lummis and two additional
independent directors will be appointed following the closing of
this offering. The committee assists our Board of Directors in
fulfilling its responsibilities for identifying and approving
individuals qualified to serve as members of our Board of
Directors by selecting Director nominees for our annual meetings
of stockholders and recommending to our Board of Directors
corporate governance guidelines and oversight with respect to
corporate governance and ethical conduct. We expect that each
member of the nominating and governance committee will be
independent as defined by the Nasdaq listing
standards.
Executive
Officers
Our executive officers are appointed by the Companys Board
of Directors 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 the position of
each of the person who was serving as an executive officer as of
September 30, 2007:
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Name
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Age
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Position
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Jack Antonini
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54
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Chief Executive Officer, President, and Director
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J. Chris Brewster
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58
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Chief Financial Officer
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Michael H. Clinard
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40
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Chief Operating Officer
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Thomas E. Upton
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51
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Chief Administrative Officer
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Rick Updyke
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48
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Chief Strategy and Development Officer
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Ronald Delnevo
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52
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Managing Director of Bank Machine and Director
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The following biographies describe the business experience of
our executive officers:
Jack Antonini has served as our Chief Executive Officer,
President, and a Director since January 2003. From November 2000
to December 2002, Mr. Antonini served as a consultant for
JMA Consulting, providing consulting services to the financial
industry. During 2000, Mr. Antonini served as Chief
Executive Officer and President of Globeset, Inc., an electronic
payment products and services company. From August 1997 to
February 2000, Mr. Antonini served as Executive Vice
President of consumer banking at First Union Corporation of
Charlotte, N.C. From September 1995 to July 1997, he served as
Vice Chairman and Chief Financial Officer of First USA
Corporation, which was acquired by Bank One in June 1997.
Mr. Antonini held various positions from March 1985 to
August 1995 at San Antonio-based USAA Federal Savings Bank,
serving as Vice Chairman, President, and Chief Executive Officer
from August 1991 to August 1995. He is a Certified Public
Accountant and holds a Bachelor of Science degree in business
and accounting from Ferris State University in Michigan.
Mr. Antonini also serves as a Director of the Electronic
Funds Transfer Association.
121
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. He 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 Chief Operating
Officer since he joined the company 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. Mr. Clinard
is the son of Ralph H. Clinard, the Companys founder and a
current member of our Board of Directors.
Thomas E. Upton has served as our Chief Administrative
Officer since February 2004. From June 2001 to February 2004,
Mr. Upton served as our Chief Financial Officer and
Treasurer. From February 1998 to May 2001, Mr. Upton was
the Chief Financial Officer of Alegis Group LLC, a national
collections firm. Prior to joining Alegis, Mr. Upton served
as a financial executive for several companies. He is a
Certified Public Accountant with membership in the Texas Society
of Certified Public Accountants and holds a Bachelor of Business
Administration degree from the University of Houston.
Rick Updyke has served as our Chief Strategy and
Development Officer since July 2007. From February 1984 to July
2007, Mr. Updyke held various positions with Dallas-based
7-Eleven, Inc. 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. Mr. Updyke also
serves as a Director and Executive Committee Member of the
Electronic Funds Transfer Association.
Ronald Delnevo has served as Managing Director of Bank
Machine for six years and has been with Bank Machine (formerly
the ATM division of Euronet) since 1998. He currently serves as
Chairman of the Association of Independent Cash Machine
Operators, a Director of the U.K. Payments Council, and a member
of the European Board of the ATMIA. Prior to joining Bank
Machine, Mr. Delnevo served in various consulting roles in the
retail sector, served as a board director of Tie Rack PLC for
five years and spent seven years with British Airports Authority
in various commercial roles. Mr. Delnevo was educated at
Heriot Watt University in Edinburgh and holds a degree in
business organization and a diploma in personnel management.
Corporate
Governance
Code of Ethics. We have adopted a Code of
Business Conduct and Ethics (the Code) that applies
to all of our employees, including our Chief Executive Officer
and Chief Financial Officer as well as other senior accounting
and finance personnel. The Code, which is reviewed and approved
on an annual basis by our audit committee and Board of
Directors, serves to
122
(1) emphasize the Companys commitment to ethics and
compliance with established laws and regulations, (2) set
forth basic standards of ethical and legal behavior,
(3) provide a reporting mechanism for known or suspected
ethical or legal violations, and (4) help prevent and
detect any wrongdoings. All waivers to or amendments of the
Companys Code of Business Conduct and Ethics, which are
required to be disclosed by applicable law, will either be
posted to our website at www.cardtronics.com or we
will file a Current Report on
Form 8-K
under Item 10 to appropriately disclose such occurrences.
Currently, we do not have nor do we anticipate any waivers to or
amendments of the Code. A copy of our Code of Business Conduct
and Ethics has been filed as an exhibit to our Annual Report on
Form 10-K
for the year ended December 31, 2006.
Audit Committee Financial Expert. As noted in
Committees of the Board of Directors above,
Robert Barone serves as the chairman and financial expert of our
audit committee. Mr. Barone was selected for this role
based upon his various executive leadership experiences,
including having historically supervised individuals who
performed accounting and finance duties at large, public
organizations. The Board of Directors has determined that
Mr. Barone is independent.
123
Executive Officer
and Director Compensation
Compensation
Discussion and Analysis
The compensation committee of our Board of Directors is
authorized to review and either approve, on behalf of our Board
of Directors, or recommend to the Board of Directors for
approval (i) the annual salaries and other compensation of
our executive officers and (ii) individual stock and stock
option grants. Additionally, the compensation committee is also
responsible for reviewing the overall goals of executive
compensation, as well as providing assistance and
recommendations with respect to our general compensation
policies and practices and assisting with the administration of
our compensation plans. Finally, our compensation committee is
responsible for evaluating the performance of each of our
executive officers and approving the compensation level of each
of our executive officers, including the amounts for each
component of compensation. Our compensation committee is
expected to perform each of these tasks annually, and may, in
its discretion, solicit the input of any of our executive
officers, any of our other employees, or any other independent
consultant or advisor.
Objectives of
Executive Compensation Program
The primary objectives of our executive compensation program are
to attract, retain, and motivate qualified individuals who are
capable of leading the Company to meet its business objectives
and to increase the overall value of the Company. To achieve
this objective, our compensation committees philosophy has
been to implement compensation programs that align the interests
of management with those of our investors and to provide
compensation programs that create incentives for and reward
performance of the executive officers based on the overall
success of the Company. Specifically, our compensation program
provides management with the incentive to increase our adjusted
earnings before interest, taxes, depreciation, and amortization,
or EBITDA (as defined in our credit facility). 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.
Our executive compensation program in 2006 consisted of three
primary elements: (i) base salary, (ii) annual cash
performance bonuses, which are disclosed in the 2006
Summary Compensation Table below under the
Non-Equity Incentive Plan Compensation column, and
(iii) stock option awards. In addition to these primary
components, we have provided, and will continue to provide, our
executive officers with certain benefits, such as healthcare
plans, that are available to all employees. We currently believe
that it is in the best interests of our investors and our
executive officers that our compensation program remains
relatively non-complex 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.
While our compensation committee reviews the total compensation
package provided by the Company to each of its executive
officers, our Board of Directors and the compensation committee
view each element of our compensation program to be distinct. 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 currently 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.
In determining the level of total compensation to be set for
each compensation component, our compensation committee
considers a number of factors, including performing an informal
benchmarking of our compensation levels to those paid by
comparable companies,
124
the Companys most recent annual performance, each
individual executive officers performance, the desire to
maintain internal equity and consistency among our executive
officers, and other considerations that we deem to be relevant.
The comparable companies selected for our benchmarking study
included Alliance Data Systems Corporation, Certegy Inc., eFunds
Corporation, Euronet Worldwide, Inc., Global Payments Inc., TNS,
Inc., Total Systems Services, Inc., and TRM Corporation. These
companies were selected based on the fact that (i) each
operates in service lines similar to those in which we operate
and (ii) information regarding compensation for that
company is publicly available. In our analysis, we reviewed the
components of executive compensation paid by each company (e.g.,
base salary, bonuses, options) as well as the relative mix of
the various components.
Compensation
Components
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 steady income stream that is not contingent upon our
overall performance. Initial base salary levels, which are
typically set or approved by the compensation committee, take
into consideration the scope of an individual executives
responsibilities and experience as well as the compensation paid
by other companies with which we believe we compete for
executives. While there is no formal weighting of these
elements, the compensation committee considers each in its
analysis. Some of these base salaries are specified by
employment agreements with our executive officers. For a listing
of some of the companies with whom we believe we compete for
executives, see Objectives of Executive Compensation
Program above. For a description of employment agreements
with our executive officers, see Employment-related
Agreements of Named Executive Officers.
The compensation committee reviews and approves subsequent
changes in the base salaries of executive officers based on
recommendations made by our Chief Executive Officer, who
conducts annual performance reviews of each executive.
Subsequent changes in the base salary of the Chief Executive
Officer are determined by the compensation committee, which
performs an analysis of the Chief Executive Officers
performance on an annual basis. Both the Chief Executive
Officers review and the compensation committees
review include an analysis of how the individual executive
performed against his personalized goals (which are jointly set
by the executive and the Chief Executive Officer at the
beginning of each year, or, in the case of the Chief Executive
Officer, by the Chief Executive Officer and the Board of
Directors). Other achievements or accomplishments of the
individual during the year are also considered, as well as any
mitigating priorities during the year that may have resulted in
a change in the executives goals for the year. Performance
is the primary driver (90%) of any increases in an
executives base salary, with base salary increases being
targeted at 3% to 5% per annum. However, the Chief Executive
Officer and the compensation committee also consider whether or
not the responsibilities of the executive remained the same
during the period or whether additional responsibilities were
assigned. Additionally, market conditions may be considered and,
if deemed necessary, salary adjustments may be recommended in
order to help us retain the executive. No market analyses were
performed and no resulting market adjustments were made during
the year ended December 31, 2006.
Annual Bonus. As noted above, the compensation
committee seeks to align the interests of management with those
of the Companys investors. To accomplish this goal, the
committee ties a portion of the annual cash compensation earned
by each executive to a targeted level of financial operating
results. For 2006, our company-level financial objectives
involved the achievement of an adjusted EBITDA target goal for
our consolidated operations (with the exception of
Mr. Delnevo, as discussed further below). The annual bonus
pool is funded if our consolidated adjusted EBITDA is equal to
at least 90% of the targeted adjusted EBITDA amount
125
for the applicable period. If the consolidated adjusted EBITDA
amount exceeds the targeted adjusted EBITDA amount, the pool is
increased by a factor based on such excess amount (as expressed
on a percentage basis). Each executive officer has a target
bonus percentage that is adjusted accordingly based on the
actual consolidated adjusted EBITDA amount relative to the
targeted adjusted EBITDA amount. In the event our consolidated
adjusted EBITDA falls below 90% of the targeted adjusted EBITDA
amount, or if there is a violation of our bank covenants, the
compensation committee, in its sole and absolute discretion, may
or may not decide to pay bonuses. For 2006, our targeted
adjusted EBITDA amount was $52.4 million. 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 ($46.0 million to
$50.0 million for 2006.) During 2006, the targeted amount
was set above the upper end of the guidance as an incentive for
management to not only meet but to exceed company-level
financial goals.
Our annual cash bonuses, as opposed to our 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 bonuses, in contrast to our equity
grants (which 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 cash
bonuses are a significant motivating factor for our executive
officers, in addition to being a significant factor in
attracting and retaining our executive officers.
We feel it is more appropriate to tie the annual bonus of
Mr. Delnevo, Managing Director of Bank Machine, to our U.K.
reportable segments adjusted EBITDA contribution to the
Company rather than to the consolidated Companys EBITDA
targets, which we use to determine the bonus pool for our other
named executive officers. For 2006, the targeted adjusted EBITDA
amount for our U.K. reportable segment was
£6.2 million.
Long-Term Incentive ProgramStock
Options. Our Board of Directors originally
adopted the 2001 Stock Incentive Plan in 2001. Various plan
amendments have been approved since that time, the most recent
being in August 2007. The 2001 Plan allows for the issuance of
equity-based awards in the form of non-qualified stock options
and stock appreciation rights to employees, directors, and
consultants of the Company, including its affiliates and
subsidiaries, as determined at the sole discretion of the
compensation committee of the Companys Board of Directors.
In March 2006, the compensation committee granted additional
stock options to Messrs. Brewster, Clinard, and Upton under
the 2001 Plan. Such options were awarded based on (i) our
executive compensation benchmark study, which indicted that
options comprised a significantly higher portion of compensation
for executives at the comparable companies than for executives
at Cardtronics, and (ii) the fact that Mr. Brewster
has not been granted options since 2004 and Messrs. Clinard
and Upton had not been granted options since 2002. As a result,
the compensation committee granted the options in an effort to
bring the compensation mix of Messrs. Brewster, Clinard,
and Upton more in-line with current market conditions as well as
to further align the interests of these three executives with
those of the Companys investors. Conversely, no additional
grants were made to Messrs. Antonini, Delnevo, and Soinski
during 2006 as a result of the sizeable restricted stock grant
awarded to Mr. Antonini in conjunction with his initial
employment in 2003, the option award granted to Mr. Delnevo
in conjunction with his retained employment subsequent to our
purchase of Bank Machine in May 2005, and the option award
granted to Mr. Soinski in conjunction with his initial
employment in August 2005.
As of September 30, 2007, the maximum number of shares of
common stock that could be issued under the 2001 Plan totaled
850,000 shares. Additionally, as of September 30,
2007, only non-qualified stock options had been issued under the
2001 Plan. Options to purchase an
126
aggregate of 802,488 shares of common stock (net of options
canceled) had been granted pursuant to the plan, and options to
purchase 245,964 shares had been exercised.
Long-Term Incentive Bonus ProgramU.K.
Operations. In connection with our acquisition of
Bank Machine in May 2005, we established a special long-term
incentive compensation program for Mr. Delnevo and three
other members of the U.K. management team. Such program was
established to provide an incentive for Mr. Delnevo and his
direct reports to achieve certain cumulative earnings objectives
over a four-year period. In particular, the program seeks to
compensate Mr. Delnevo and others if the cumulative EBITDA
in the U.K., as defined under the program, for the four years in
the period ending December 31, 2008, exceeds a benchmark
adjusted EBITDA amount for the same period
(£20.5 million), less an investment charge on the
capital employed to achieve such results. In the event the
cumulative EBITDA exceeds the cumulative benchmark EBITDA, less
the applicable investment charge, Mr. Delnevo will be
eligible to receive a cash bonus equal to 4.0% of such
cumulative excess amount. In the event the cumulative EBITDA is
less than the cumulative benchmark EBITDA, less the applicable
investment charge, no bonus will be earned or paid under this
program. The cash bonus target of 4.0% is less than the 5.0%
target originally outlined in the bonus agreement between
Mr. Delnevo and the Company and represents a subsequent
modification to such agreement as agreed to by both parties.
Severance and Change of Control
Arrangements. Our executive officers are entitled
to certain benefits upon the termination of their respective
employment agreements. Such provisions are intended to mitigate
some of the risk that our executive officers may bear in working
for a developing company such as Cardtronics, including the
potential sale of the Company by our investors. Additionally,
the severance provisions are intended to compensate an executive
during the non-compete period (required under the terms of his
employment agreement), which limit the executives ability
to work for a similar
and/or
competing company for the period subsequent to his termination.
For further discussion, see Employment-related
Agreements of Named Executive Officers.
401(k) Savings Plan. We have a defined
contribution 401(k) plan, which is designed to assist our
employees in providing for their retirement. Each of our
executive officers are entitled to participate in this plan to
the same extent that our other employees are entitled to
participate. Historically, we have not made matching
contributions. In 2007, we began matching 25% of employee
contributions up to 6.0% of the employees salary.
Employees are immediately vested in their contributions while
our matching contributions will vest at a rate of 20% per year.
127
2006 Summary
Compensation Table
The following table summarizes, for the fiscal year ended
December 31, 2006, the compensation paid to or earned by
our Chief Executive Officer, our Chief Financial Officer, and
three other named executive officers serving as of
December 31, 2006, as well as one additional individual we
have identified as qualifying as a named executive officer in
2006 but not serving as an executive officer as of year-end.
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Non-Equity
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Stock
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Option
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Incentive Plan
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All Other
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Name & Principal Position
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Year
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Salary
|
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|
Awards (1)
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Awards (2)
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Compensation
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|
Compensation
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Total
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Jack Antonini -
Director, Chief Executive Officer, and President
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2006
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$
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347,287
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$
|
215,894
|
|
|
$
|
|
|
|
$
|
223,653
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|
|
$
|
|
|
|
$
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786,834
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|
J. Chris Brewster -
Chief Financial Officer
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2006
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$
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248,063
|
|
|
|
|
|
|
$
|
103,929
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(3)
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|
$
|
209,753
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|
|
$
|
|
|
|
$
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561,745
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Michael H. Clinard -
Chief Operating Officer
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2006
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$
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231,525
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|
|
|
|
|
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$
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69,286
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(3)
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|
$
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149,102
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|
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$
|
9,000
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(4)
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$
|
458,913
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Thomas E. Upton -
Chief Administrative Officer
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2006
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$
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220,500
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|
|
|
|
|
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$
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69,286
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(3)
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$
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234,902
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|
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$
|
--
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$
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524,688
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Ronald
Delnevo (5)
-
Director and Managing Director of Bank Machine
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2006
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$
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281,937
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|
|
|
|
|
|
$
|
|
|
|
$
|
153,868
|
|
|
$
|
49,180
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(6)
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$
|
484,985
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Drew
Soinski (7)
-
Chief Marketing Officer
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2006
|
|
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$
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164,384
|
|
|
|
|
|
|
$
|
|
|
|
$
|
83,333
|
|
|
$
|
253,499
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(8)
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$
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501,216
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|
|
|
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(1)
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Amount represents the compensation
expense recognized by the Company in 2006 related to restricted
stock granted to Mr. Antonini in 2004.
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(2)
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During 2006, the compensation
committee granted option awards to Messrs. Brewster, Clinard,
and Upton, but did not grant option awards to
Messrs. Antonini, Delnevo, and Soinski. For details on
considerations related to the 2006 option grants, see
Compensation ComponentsLong-Term Incentive
ProgramStock Options.
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(3)
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Amounts were calculated utilizing
the provisions of SFAS No. 123R. For a description of
the assumptions underlying the valuation of these option awards,
see Note 3 in the notes to our consolidated financial
statements included elsewhere herein. For purposes of this
disclosure, estimates of forfeitures related to service-based
vesting conditions have been omitted.
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(4)
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Amount represents the car allowance
provided to Mr. Clinard in accordance with the terms of his
employment agreement.
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(5)
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Amounts shown for Mr. Delnevo
were converted from Pounds Sterling to U.S. dollars at $1.9613,
which represents the exchange rate in effect as of
December 31, 2006.
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(6)
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Amount represents a car allowance
of £12,000 and monthly contributions made on behalf of
Mr. Delnevo to a personal retirement account selected by
Mr. Delnevo in accordance with the terms of his employment
agreement.
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(7)
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Mr. Soinski served as our
Chief Marketing Officer from August 2005 until August 2006.
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(8)
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Amount equals
Mr. Soinskis base salary for 12 months plus a
partial subsidization of his health and life insurance premiums.
This additional compensation is related to
Mr. Soinskis departure from the Company and is being
made pursuant to the terms of Mr. Soinskis employment
agreement with the Company.
|
The terms governing each of our executives employment are
outlined in individual employment agreements. Below is a
description of such agreements.
Employment-related
Agreements of Named Executive Officers
Employment Agreement with Jack Antonini. In
January 2003, we entered into an employment agreement with Jack
Antonini. Mr. Antoninis January 2003 employment
agreement was last amended in January 2005. Under his employment
agreement, Mr. Antonini receives a current monthly salary
of $28,941 and his term of employment runs through
January 31, 2008. In addition, subject to our achieving
certain performance standards set by our compensation
128
committee, Mr. Antonini may be entitled to an annual bonus,
targeted at 50% of his base salary. However, as this bonus is
determined at the sole discretion of our compensation committee,
the actual amount of the bonus awarded may exceed or fall short
of the targeted level. For additional information on terms of
our bonus plan, see Compensation
ComponentsAnnual Bonus above. Further, should we
terminate Mr. Antoninis employment without cause, or
should a change in control occur, as defined in the agreement,
he will be entitled to receive severance pay equal to his base
salary for the lesser of twelve months or the number of months
remaining under his employment contract.
Employment Agreement with J. Chris
Brewster. In March 2004, we entered into an
employment agreement with J. Chris Brewster.
Mr. Brewsters March 2004 employment agreement was
amended in February 2005. The amended agreement provides for an
initial term ending January 31, 2008. Under the amended
employment agreement, Mr. Brewster receives a current
monthly base salary of $20,672, subject, on each anniversary of
the agreement, to increases as determined by our compensation
committee at its sole discretion, with such increases being
targeted to be 5% of the previous years base salary. In
addition, subject to our achieving certain performance standards
set by our compensation committee, Mr. Brewster may be
entitled to an annual bonus, targeted at 50% of his base salary.
However, as this bonus is determined at the sole discretion of
our compensation committee, the actual amount of the bonus
awarded may exceed or fall short of the targeted level. For
additional information on terms of our bonus plan, see
Compensation ComponentsAnnual Bonus
above. Further, should we terminate Mr. Brewsters
employment without cause, or should Mr. Brewster terminate
his employment with us for good reason, as defined in the
employment agreement, he will be entitled to receive severance
pay equal to his base salary for twelve months.
Employment Agreement with Michael H.
Clinard. In June 2001, we entered into an
employment agreement with Michael H. Clinard.
Mr. Clinards June 2001 employment agreement was
amended in January 2005. Under his employment agreement, Mr.
Clinard receives a current monthly salary of $19,294 and his
term of employment runs through January 31, 2008. On each
anniversary of the agreement, Mr. Clinards annual
compensation is subject to increases as determined by our
compensation committee in its sole discretion, with such
increases being targeted to be 5% of the previous years
base salary. In addition, subject to our achieving certain
performance standards set by our compensation committee,
Mr. Clinard may be entitled to an annual bonus, targeted at
50% of his base salary. However, as this bonus is determined at
the sole discretion of our compensation committee, the actual
amount of the bonus awarded may exceed or fall short of the
targeted level. For additional information on terms of our bonus
plan, see Compensation ComponentsAnnual
Bonus above. Further, (i) should we terminate
Mr. Clinards employment without cause, or should
Mr. Clinard terminate his employment with us for good
reason, as defined in the employment agreement, then he is
entitled to receive severance pay equal to his base salary for
the lesser of twelve months or the number of months remaining
under his employment contract following his termination, and
(ii) if he dies or becomes totally disabled, as defined in
the employment agreement, then he is entitled to receive the
difference between his base salary and any disability benefits
received by him under our disability benefit plans for the
lesser of twelve months or the number of months remaining under
his employment contract following his death or disability, as
applicable.
Employment Agreement with Thomas E. Upton. In
June 2001, we entered into an employment agreement with Thomas
E. Upton. Mr. Uptons June 2001 employment agreement
was amended in January 2005. Under his employment agreement,
Mr. Upton receives a monthly salary of $18,375, 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. Mr. Uptons term
of employment runs through January 31, 2008. In addition,
subject to our achieving certain performance standards set by
our compensation committee,
129
Mr. Upton may be entitled to an annual bonus, targeted as
being 50% of his base salary. However, as this bonus is
determined at the sole discretion of our compensation committee,
the actual amount of the bonus awarded may exceed or fall short
of the targeted level. For additional information on terms of
our bonus plan, see Compensation
ComponentsAnnual Bonus above. Further, should we
terminate Mr. Uptons employment without cause or if
he dies or becomes totally disabled, as defined in the
employment agreement, then he is entitled to receive severance
pay equal to his base salary for the lesser of twelve months or
the number of months remaining under his employment following
his termination.
Employment Agreement with Ronald Delnevo. In
May 2005, we entered into an employment agreement with Ronald
Delnevo which runs though May 17, 2009. Under the
employment agreement, Mr. Delnevo receives a current
monthly base salary of £14,167 ($27,785 based on
December 31, 2006 exchange rates), subject, on each
anniversary of the agreement, to increases as determined by our
compensation committee at its sole discretion, with such
increases being targeted to be 5% of the previous years
base salary. In addition, subject to our achieving certain
performance standards set by our compensation committee,
Mr. Delnevo may be entitled to an annual bonus, targeted at
40% of his base salary. However, as this bonus is determined at
the sole discretion of our compensation committee, the actual
amount of the bonus awarded may exceed or fall short of the
targeted level. For additional information on terms of our bonus
plan, see Compensation ComponentsAnnual
Bonus above. In addition, Mr. Delnevo may be entitled
to receive an additional bonus under our U.K. long-term
incentive bonus program, which was established by the Company in
connection with our acquisition of Bank Machine. Under the plan,
in the event the cumulative EBITDA achieved by our United
Kingdom operations during the four year period ending
December 31, 2008 exceeds a benchmark adjusted EBITDA
amount for the same period, Mr. Delnevo will be eligible to
receive a cash bonus equal to 4.0% of the excess amount. For
additional information on the terms of this long-term incentive
plan, see Compensation ComponentsLong-Term
Incentive Bonus ProgramU.K. Operations. Further,
should we terminate Mr. Delnevo without cause, or should
Mr. Delnevo terminate his employment with us for good
reason, as defined in the employment agreement, then he is
entitled to continue to receive payments of base salary from us
for the lesser of twelve months or the number of months
remaining under his employment contract following his
termination.
Common Provisions of Employment-Related Agreements of Named
Executive Officers. Several provisions are common to the
employment agreements of our named executive officers. For
example:
(1) Each employment agreement requires the employee to
protect the confidentiality of our proprietary and confidential
information.
(2) Each employment agreement (with the exception of
Mr. Delnevos agreement) requires that the employee
not compete with us or solicit our employees or customers for a
period of 24 months following the term of his employment.
Mr. Delnevos agreement contains a non-compete period
of 12 months following the term of his employment.
(3) Each employment agreement provides that the employee
may be paid an annual bonus based on certain factors and
objectives set by our compensation committee, with the ultimate
amount of any bonus paid determined at the direction of our
compensation committee.
130
Grants of
Plan-based Awards in Fiscal 2006
The following table sets forth certain information with respect
to the options granted during or for the year ended
December 31, 2006 to each of our executive officers listed
in the Summary Compensation Table. Such table also sets forth
details regarding other plan-based awards granted in 2006:
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All Other
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Option
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Awards:
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Exercise
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Grant Date
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Estimated Possible/Future
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Number of
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or Base
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Fair Value
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Payouts Under Non-Equity
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Securities
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Price of
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of Stock
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Grant
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Approval
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Incentive Plan
Awards (1)
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Underlying
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Option
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and Option
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Name
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Date
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Date (3)
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Threshold
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Target
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Maximum
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Options
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Awards (2)
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Awards
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Jack Antonini
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$
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$
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173,644
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(4)
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J. Chris Brewster
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$
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$
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124,032
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(4)
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03-06-2006
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03-03-2006
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15,000
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$
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83.84
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$
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505,601
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Michael H. Clinard
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$
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$
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115,763
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(4)
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03-06-2006
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03-03-2006
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10,000
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$
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83.84
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$
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337,067
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Thomas E. Upton
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$
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$
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110,250
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(4)
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03-06-2006
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03-03-2006
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10,000
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$
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83.84
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$
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337,067
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Ronald
Delnevo (5)(6)
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$
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$
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133,368
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(4)
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Drew Soinski
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$
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$
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125,000
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(4)
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(1)
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Represents the dollar value of the
applicable range (threshold, target and maximum amounts) of
bonuses awarded to each named executive officer for 2006. The
actual bonus amounts paid to the named executive officers are
reflected in the Non-Equity Incentive Plan
Compensation column of the 2006 Summary Compensation
Table reflected above.
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(2)
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There was no public market for the
Companys common stock throughout 2006. Accordingly, the
exercise price of $83.84 per share represents managements
estimate of the fair value of its common stock at the date of
grant. Such estimate was based on a number of factors, including
(i) the value paid by TA Associates for its purchase of the
Companys Series B preferred stock in 2005,
(ii) managements estimate of the Companys
anticipated future cash flows, and (iii) the enterprise
values of other similar publicly-traded companies within the
Companys industry.
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(3)
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Represents the date our
compensation committee formally approved the option grants.
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(4)
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Under the 2006 Executive Bonus
Plan, there is no formal cap on the amount of bonus an executive
may receive. Rather, the annual bonuses for our executives are
determined at the sole discretion of our compensation committee.
As a result, the actual amounts awarded may exceed or fall short
of the targeted level. As we are unable to predict the
committees ultimate actions regarding the bonus awards, we
are unable to estimate the maximum possible grants that could
potentially be made and paid out under the bonus plan.
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(5)
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Amounts shown for Mr. Delnevo
were converted from Pounds Sterling to U.S. dollars at $1.9613,
which represents the exchange rate in effect as of
December 31, 2006.
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(6)
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The non-equity incentive plan
awards information presented for Mr. Delnevo excludes
amounts that may become payable under our U.K. long-term
incentive bonus program. Future payouts under such program,
which was established to provide an incentive for
Mr. Delnevo and his direct reports to achieve certain
cumulative earnings objectives over a four-year period, are
contingent upon the actual results exceeding the cumulative
earnings benchmark, less an investment charge on the capital
employed to achieve such results. Under the terms of the
incentive plan, such payouts would not occur until 2009. As a
result, we are unable to estimate at this time what the ultimate
payout will be, if any.
|
131
Outstanding
Equity Awards at Fiscal 2006 Year-end
The following table sets forth information for each of the above
named executive officers regarding the number of shares subject
to both exercisable and unexercisable stock options, as well as
shares that have not vested as of December 31, 2006.
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Option Awards
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Stock Awards
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Number of Securities
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Option
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Option
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Market Value of
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Underlying Unexercised Options
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Exercise
|
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Expiration
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# of Shares that
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Shares that
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Name
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Exercisable
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Unexercisable
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Price
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Date
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have not Vested
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have not Vested
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Jack
Antonini (1)
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|
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20,000
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(2)
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$
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1,822,400
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(3)
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J. Chris Brewster
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30,000
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15,000
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(4)
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$
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52.00
|
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03-31-2014
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15,000
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(5)
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$
|
83.84
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03-06-2016
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Michael H. Clinard
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12,417
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$
|
5.88
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|
06-04-2011
|
|
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|
|
|
|
|
|
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|
6,266
|
|
|
|
|
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|
$
|
11.73
|
|
|
|
03-03-2012
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
10,000
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(5)
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|
$
|
83.84
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|
|
|
03-06-2016
|
|
|
|
|
|
|
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|
|
Thomas E. Upton
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|
|
19,854
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|
|
|
|
|
|
$
|
5.87
|
|
|
|
06-04-2011
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750
|
|
|
|
|
|
|
$
|
11.73
|
|
|
|
03-03-2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
(5)
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|
$
|
83.84
|
|
|
|
03-06-2016
|
|
|
|
|
|
|
|
|
|
Ronald Delnevo
|
|
|
10,000
|
|
|
|
30,000
|
(6)
|
|
$
|
83.84
|
|
|
|
05-17-2015
|
|
|
|
|
|
|
|
|
|
Drew
Soinski (7)
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|
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25,000
|
|
|
|
|
|
|
$
|
83.84
|
|
|
|
08-28-2007
|
|
|
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|
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|
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|
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|
|
(1)
|
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Mr. Antonini only owns
restricted shares in the Company and has not been granted any
options to purchase the Companys common stock.
|
|
(2)
|
|
These shares fully vested on
January 20, 2007.
|
|
(3)
|
|
There was no public market for our
common stock on December 31, 2006. Accordingly, we
calculated this value based on an estimated price per share of
$91.12, which was the estimated fair value of our common stock
as of December 31, 2006. This fair value was estimated
utilizing the probability-weighted expected return cash flow
method, and included (i) estimates of fair value based on
the Companys anticipated future cash flows and
(ii) the enterprise value of other similar publicly-traded
companies within the Companys industry, including those
that had been recently acquired.
|
|
(4)
|
|
These options fully vested on
March 31, 2007.
|
|
(5)
|
|
These options will vest in four
equal annual installments, the first of which occurred on
March 6, 2007 and the last of which will occur on
March 6, 2010.
|
|
(6)
|
|
These remaining options will vest
in three equal annual installments, the first of which occurred
on May 17, 2007 and the last of which will occur on
May 17, 2009.
|
|
(7)
|
|
These options expired unexercised
on August 28, 2007.
|
Option
Exercises and Stock Vested during Fiscal Year 2006
During the fiscal year ended December 31, 2006, none of our
named executive officers exercised any stock options. However,
20,000 shares of the restricted stock grant made to our
Chief Executive Officer in 2003 vested in February 2006. These
20,000 shares, which were purchased by Mr. Antonini in
2003, had a value of approximately $1,676,800 at the time of
vesting, the value of which was determined by management.
Pension
Benefits
Currently, Cardtronics does 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.)
132
Nonqualified
Deferred Compensation
Cardtronics offers a 401(k) savings plan to its employees but
has not historically made matching contributions. As a result,
while certain executive officers participated in the 401(K) plan
in 2006, there was no element of compensation related to the
plan in 2006.
Potential
Payments upon Termination or Change in Control
The table below reflects the amount of compensation payable to
the named executive officers in the event of a termination of
employment or a change in control of the Company. The amount of
compensation payable to each named executive officer in each
situation is listed. The amounts shown assume that such
termination was effective as of December 31, 2006:
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Termination in
|
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Termination by
|
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|
|
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|
|
Involuntary,
|
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|
|
|
|
Connection
|
|
Executive
|
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|
|
|
|
|
|
|
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|
Not-
|
|
Good Reason
|
|
|
|
with a
|
|
upon a
|
|
|
|
|
|
|
Voluntary
|
|
For-Cause
|
|
for-Cause
|
|
Termination
|
|
Change in
|
|
Change in
|
|
Change in
|
|
Death or
|
Executive
|
|
Benefits
|
|
Termination
|
|
Termination
|
|
Termination
|
|
by Executive
|
|
Control
|
|
Control
|
|
Control
|
|
Disability
|
|
|
|
|
(1)
|
|
(1)
|
|
(1)(2)
|
|
(1)
|
|
|
|
(1)
|
|
|
|
(1)
|
|
Jack Antonini
|
|
Base
salary(3)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
347,287
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
347,287
|
|
|
$
|
347,287
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus
|
|
|
|
|
|
|
|
|
|
|
223,653
|
|
|
|
|
|
|
|
|
|
|
|
223,653
|
|
|
|
|
|
|
|
223,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
Restricted
stock(4)
|
|
|
|
|
|
|
|
|
|
|
1,587,200
|
|
|
|
1,587,200
|
|
|
|
1,587,200
|
|
|
|
1,587,200
|
|
|
|
1,587,200
|
|
|
|
1,587,200
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Chris Brewster
|
|
Base
salary(5)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
248,063
|
|
|
$
|
248,063
|
|
|
$
|
|
|
|
$
|
248,063
|
|
|
$
|
248,063
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus
|
|
|
|
|
|
|
|
|
|
|
209,753
|
|
|
|
209,753
|
|
|
|
|
|
|
|
209,753
|
|
|
|
209,753
|
|
|
|
209,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options(6)
|
|
|
|
|
|
|
|
|
|
|
586,800
|
|
|
|
586,800
|
|
|
|
586,800
|
|
|
|
586,800
|
|
|
|
586,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-employment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
health
care(7)
|
|
|
|
|
|
|
|
|
|
|
8,134
|
|
|
|
8,134
|
|
|
|
|
|
|
|
8,134
|
|
|
|
8,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael H. Clinard
|
|
Base salary
|
|
$
|
|
|
|
$
|
|
|
|
$
|
231,525
|
|
|
$
|
231,525
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
179,525
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus
|
|
|
|
|
|
|
|
|
|
|
149,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas E. Upton
|
|
Base salary
|
|
$
|
|
|
|
$
|
|
|
|
$
|
220,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
220,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus
|
|
|
|
|
|
|
|
|
|
|
234,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald
Delnevo(9)
|
|
Base salary
|
|
$
|
|
|
|
$
|
|
|
|
$
|
333,739
|
|
|
$
|
333,739
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
102,591
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonus
|
|
|
|
|
|
|
|
|
|
|
153,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued vacation
|
|
|
6,412
|
|
|
|
|
|
|
|
6,412
|
|
|
|
6,412
|
|
|
|
|
|
|
|
6,412
|
|
|
|
|
|
|
|
6,412
|
|
|
|
|
(1)
|
|
Upon the occurrence of any of the
termination events listed, the terminated executive would
receive any base salary amount that had been earned but had not
been paid at the time of termination. The total amounts shown
above do not include such amounts.
|
|
(2)
|
|
In the event of a not-for-cause
termination, the terminated executive would receive severance
pay equal to his current base salary for the lesser of a period
of 12 months or the number of months remaining under the
executives employment agreement. The employment agreements
of Messrs. Antonini, Brewster, Clinard, and Upton expire on
January 31, 2008. The employment agreement of
Mr. Delnevo expires on May 17, 2009. For each
executive, such amount would be payable in bi-weekly
installments with the exception of Mr. Delnevo, whose
employment agreement calls for such amount to be paid within
14 days of receiving a notice of termination. Additionally,
each executive would receive a pro-rata bonus for services
provided during the year. Amounts shown above represent the full
bonus earned by the executive in 2006.
|
|
(3)
|
|
In the event of a termination upon
a change in control, Mr. Antonini would receive severance
pay equal to his current base salary for a period of
12 months. There is no specified time period following a
change in control in which Mr. Antonini must notify the
Company of his intention to terminate his employment with the
Company.
|
|
(4)
|
|
Pursuant to the terms of
Mr. Antoninis restricted stock agreement, his
unvested restricted shares would automatically vest upon death
or disability, a change in control, a not-for-cause termination,
or a good reason termination. Amount shown does not represent a
liability of the Company, but rather represents the benefit to
the executive as a result of the accelerated vesting. Such
amount represents the product of (a) the 20,000 unvested
shares that would vest as of December 31, 2006 upon the
aforementioned events, and (b) the difference between
(A) $91.12, the estimated fair market value of our common
stock as of December 31, 2006, and (B) the price at
which Mr. Antonini purchased the restricted shares in 2004.
These 20,000 restricted shares became fully vested on
January 20, 2007, upon the expiration of the Companys
right to repurchase such restricted shares.
|
133
|
|
|
(5)
|
|
In the event of a not-for-cause
termination, a good reason termination, or termination upon a
change in control, Mr. Brewster would receive payment in
the amount of his base salary for a period of twelve months. To
be eligible to receive such payments in the event of a good
reason termination or a termination by the executive upon a
change in control, Mr. Brewster must notify the Company
within one year of the occurrence that he intends to terminate
his employment with the Company. 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 the Company would be reduced by
the gross amount being earned under his new employment
arrangement.
|
|
(6)
|
|
Pursuant to the terms of
Mr. Brewsters stock option agreement, 15,000 of his
unvested options would automatically vest upon the event of a
not-for-cause termination, a good reason termination, or a
change in control. Amount shown does not represent a liability
of the Company, but rather represents the benefit to the
executive as a result of the accelerated vesting. Such amount
represents the product of (a) the 15,000 shares
underlying the outstanding options that would have vested as of
December 31, 2006 upon the aforementioned events, and
(b) the difference between (A) $91.12 (the estimated
fair market value of our common stock as of December 31,
2006), and (B) the exercise price of the options.
Mr. Brewster, or his designated beneficiaries, would have
three years from the date of his termination to exercise all
vested options. These 15,000 options fully vested on
March 31, 2007.
|
|
(7)
|
|
If Mr. Brewster, in the event
of a not-for-cause termination, a good reason termination, or a
termination in connection with a change in control, elected to
continue benefits coverage through the Companys group
health plan under the Consolidated Omnibus Budget Reconciliation
Act of 1986 (COBRA), the Company would partially subsidize
Mr. Brewsters incremental healthcare premiums. Amount
shown represents the difference in Mr. Brewsters
current insurance premiums and current COBRA rates for a similar
plan.
|
|
(8)
|
|
In the event
Mr. Clinards employment is terminated as a result of
death or disability, Mr. Clinard would be entitled to
receive payments equal to the difference between his base salary
and any disability benefits received by him under the
Companys disability benefits plans (calculated as the
lesser of 60% of base salary or $52,000) for twelve months.
|
|
(9)
|
|
Amounts shown for Mr. Delnevo
were converted from Pounds Sterling to U.S. dollars at $1.9613,
which represents the exchange rate in effect as of
December 31, 2006.
|
|
(10)
|
|
In the event Mr. Delnevo
becomes disabled, Mr. Delveno would be entitled to receive
payments equal to his base salary for a maximum of 16 weeks
(i.e., 80 work days.)
|
In August 2006, Mr. Soinskis employment with the
Company ended. The Company determined that he was entitled to
additional compensation equal to his base salary for twelve
months, a pro-rata bonus payment, as well as the partial
subsidization of his health and life insurance premiums.
Change in Control. For purposes of the above
disclosure, a change in control is defined as the following:
(a) prior to the date of an initial public offering,
(i) any transaction or event pursuant to which the
CapStreet Investors and TA Associates, Inc. (or their respective
affiliates) cease collectively to own 50% or more of the
Companys common stock equivalents or (ii) all or
substantially all of the assets of Cardtronics, Inc. are
transferred to an entity that is not owned (in substantially the
same proportions) by the holders of equity securities of
Cardtronics, Inc. immediately prior to such transaction; and
(b) from and after the date of an initial public offering,
(i) a merger of Cardtronics, Inc. with another entity, a
consolidation involving Cardtronics, Inc., or the sale of all or
substantially all of the assets of Cardtronics, Inc. to another
entity if, in any such case, (A) the holders of equity
securities of Cardtronics, Inc. immediately prior to such
transaction or event do not beneficially own immediately after
such transaction or event equity securities of the resulting
entity entitled to 60% or more of the votes then eligible to be
cast in the election of directors generally (or comparable
governing body) of the resulting entity in substantially the
same proportions that they owned the equity securities of
Cardtronics, Inc. immediately prior to such transaction or event
or (B) the persons who were members of the Board
immediately prior to such transaction or event shall not
constitute at least a majority of the board of directors of the
resulting entity immediately
134
after such transaction or event, (ii) the dissolution or
liquidation of Cardtronics, Inc., (iii) when any person or
entity, including a group as contemplated by
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (other than the CapStreet Investors) acquires or gains
ownership or control (including, without limitation, power to
vote) of more than 50% of the combined voting power of the
outstanding securities of, (A) if Cardtronics, Inc. has not
engaged in a merger or consolidation, Cardtronics, Inc. or
(B) if Cardtronics, Inc. has engaged in a merger or
consolidation, the resulting entity, or (iv) as a result of
or in connection with a contested election of directors, the
persons who were members of the Board immediately before such
election shall cease to constitute a majority of the Board.
Notwithstanding the foregoing, in no event shall an initial
public offering constitute a Change of Control. Accordingly,
this offering and the sale of stock by selling stockholders will
not trigger a Change of Control.
Additionally, pursuant to the terms of our 2001 Stock Incentive
Plan, the compensation committee, at its sole discretion, may
take action related to
and/or make
changes to such options and the related options agreements upon
the occurrence of an event that qualifies as a change in
control. Such actions
and/or
changes could include (but are not limited to)
(i) acceleration of the vesting of the outstanding,
non-vested options, (ii) modifications to the number and
price of shares subject to the option agreements,
and/or
(iii) 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). Such actions
and/or
changes 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.
Director
Compensation
The following table provides compensation information for the
year ended December 31, 2006, for each member of our Board
of Directors:
|
|
|
|
|
|
|
Fees Earned or
|
Name
|
|
Paid in Cash
|
|
Fred R. Lummis
|
|
|
|
|
Robert P. Barone
|
|
$
|
5,000
|
|
Frederick W. Brazelton
|
|
|
|
|
Ralph H. Clinard
|
|
|
|
|
Jorge M. Diaz
|
|
$
|
2,000
|
|
Roger B. Kafker
|
|
|
|
|
Michael A.R. Wilson
|
|
|
|
|
Jack Antonini
|
|
|
|
|
Ronald Delnevo
|
|
|
|
|
Ronald Coben
|
|
$
|
3,000
|
|
We pay each of our independent Directors $1,000 per Board
meeting attended, with the exception of Mr. Clinard. In
light of Mr. Clinards status as the founder of the
Company, as well the fact that he and other members of his
immediate family retain a significant ownership interest in the
Company, Mr. Clinard has waived his right to receive
payment for services rendered as a member of our Board.
Additionally, although Mr. Diaz is not considered
independent (as a result of his association with Fiserv, a
company with whom we conduct business), he is compensated for
his time as though he were an independent Board member. As noted
in the table above, Messrs. Lummis, Brazelton, Kafker,
Wilson, Antonini, and Delnevo received no compensation for their
service on our Board of Directors during the year ended
135
2006. All of our Directors are reimbursed for their reasonable
expenses in attending Board and committee meetings.
In addition to the above, Mr. Coben received approximately
$2,875 in fees from the Company during 2006 for certain
consulting services provided by Mr. Coben to the Company.
As noted previously, Mr. Coben resigned from the
Companys Board of Directors in January 2007, and his
resignation was not the result of any disagreement with the
Company.
In addition, we are in the process of establishing a plan which
would permit each Director to receive compensation for Board
service in the form of common shares and to defer receipt of
this compensation for a period of time selected by the director
that terminates no later than the date he ceases to be a
Director. No options or other stock awards were granted to any
of our Directors in 2006.
Compensation
Committee Interlocks and Insider Participation
During 2006, none of the Companys executive officers
(current or former) served as a member of the compensation
committee. Additionally, none of the Companys 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 Cardtronics compensation committee.
2007 Stock
Incentive Plan
In August 2007, our Board of Directors and the stockholders of
the Company adopted and approved the Companys 2007 Stock
Incentive Plan (the 2007 Plan). The adoption,
approval, and effectiveness of the 2007 Plan is contingent upon
the successful completion of this offering. The purpose of the
2007 Plan is to provide directors, employees, advisors and
consultants of the Company and its affiliates additional
incentive and reward opportunities designed to enhance the
profitable growth of the Company and its affiliates. The 2007
Plan provides for the granting of incentive stock options
intended to qualify under Section 422 of the Code, options
that do not constitute incentive stock options, restricted stock
awards, performance awards, phantom stock awards, and bonus
stock awards. The 2007 Plan is administered by the compensation
committee of the Board of Directors. In general, the
compensation committee is authorized to select the recipients of
awards and to establish the terms and conditions of those
awards. In connection with the adoption of the 2007 Plan, the
Board determined that no further awards will be granted under
the Companys 2001 Stock Incentive Plan upon the
effectiveness of the 2007 Plan.
The number of shares of common stock that may be issued under
the 2007 Plan may not exceed 400,000 shares (or
3,270,330 shares on a post-split basis immediately
following this offering), subject to further adjustment to
reflect stock dividends, stock splits, recapitalizations and
similar changes in the Companys capital structure. Shares
of common stock that are attributable to awards that have
expired, terminated or been canceled or forfeited are available
for issuance or use in connection with future awards. In
addition, shares issued under the 2007 Plan that are forfeited
back to the 2007 Plan, shares surrendered in payment of the
exercise price or purchase price of an award, and shares
withheld for payment of applicable taxes are available for
issuance or use in connection with future awards. The maximum
number of shares of common stock that may be subject to awards
denominated in shares of common stock granted under the 2007
Plan to any one individual during the term of the 2007 Plan may
not exceed 50% of the aggregate number of shares of common stock
that may be issued under the 2007 Plan (as adjusted from time to
time in accordance with the provisions of the 2007 Plan). The
maximum amount of compensation that may be paid under all
performance awards under the 2007 Plan denominated in cash
(including the fair market value of any shares of common stock
paid in satisfaction of such performance awards) granted to any
one individual
136
during any calendar year may not exceed $1,000,000, and any
payment due with respect to a performance award shall be paid no
later than 10 years after the date of grant of such
performance award.
The price at which a share of common stock may be purchased upon
exercise of an option granted under the 2007 Plan will be
determined by the compensation committee, but such purchase
price will not be less than the fair market value of a share of
common stock on the date such option is granted. Additionally, a
stock appreciation right may be granted in connection with the
grant of an option or independently of such grant. A stock
appreciation right allows the holder to exercise the right and
acquire common stock
and/or cash
having an aggregate value equal to the then excess of the fair
market value of the shares with respect to which the right is
exercised over the exercise price therefor. The exercise price
per share under a stock appreciation right granted under the
2007 Plan will be determined by the compensation committee, but
such exercise price will not be less than the fair market value
of a share of common stock on the date such stock appreciation
right is granted.
Shares of common stock that are the subject of a restricted
stock award under the 2007 Plan will be subject to restrictions
on disposition by the holder of such award and an obligation of
such holder to forfeit and surrender the shares to the Company
under certain circumstances (the Forfeiture
Restrictions). The Forfeiture Restrictions will be
determined by the compensation committee in its sole discretion,
and the compensation committee may provide that the Forfeiture
Restrictions will lapse upon (a) the attainment of one or
more performance targets established by the compensation
committee that are based on (1) the price of a share of
common stock, (2) the Companys earnings per share,
(3) the Companys market share, (4) the market
share of a business unit of the Company designated by the
compensation committee, (5) the Companys sales,
(6) the sales of a business unit of the Company designated
by the compensation committee, (7) the net income (before
or after taxes) of the Company or any business unit of the
Company designated by the compensation committee, (8) the
cash flow or return on investment of the Company or any business
unit of the Company designated by the compensation committee,
(9) the earnings before or after interest, taxes,
depreciation,
and/or
amortization of the Company or any business unit of the Company
designated by the compensation committee, (10) the economic
value added, (11) the return on capital, assets, or
stockholders equity achieved by the Company, or
(12) the total stockholders return achieved by the
Company (the goals described in items (1) through
(12) are referred to as the Enumerated Performance
Goals), (b) the award holders continued
employment with the Company or continued service as a consultant
or director for a specified period of time, (c) the
occurrence of any event or the satisfaction of any other
condition specified by the compensation committee in its sole
discretion, or (d) a combination of any of the foregoing.
A performance award under the 2007 Plan is an award of shares of
common stock, cash payments, or a combination thereof that may
be earned based on the satisfaction of various performance
targets established by the compensation committee that are based
upon one or more of the Enumerated Performance Goals. At the
time of the grant of a performance award, the compensation
committee will establish the maximum number of shares of common
stock subject to, or the maximum value of, such award and the
period over which the performance applicable to the award will
be measured.
Phantom stock awards under the 2007 Plan are awards of common
stock (or the fair market value thereof), or rights to receive
amounts equal to share appreciation over a specific period of
time. Such awards vest over a period of time established by the
compensation committee, without satisfaction of any performance
criteria or objectives. Payment of a phantom stock award may be
made in cash, common stock, or a combination thereof.
Bonus stock awards under the 2007 Plan are awards of
unrestricted common stock. These awards are granted on such
terms and conditions and at such purchase price determined by
137
the compensation committee and need not be subject to
performance criteria, objectives, or forfeiture.
No awards under the 2007 Plan may be granted after 10 years
from the date the 2007 Plan was adopted by the Board of
Directors. The 2007 Plan will remain in effect until all options
granted under the 2007 Plan have been exercised or expired, all
shares of restricted stock granted under the 2007 Plan have
vested or been forfeited, and all performance awards, phantom
stock awards and bonus stock awards have been satisfied or
expired. The Board of Directors in its discretion may terminate
the 2007 Plan at any time with respect to any shares of common
stock for which awards have not been granted. The 2007 Plan may
be amended, other than to increase the maximum aggregate number
of shares that may be issued under the 2007 Plan, to increase
the maximum number of shares that may be issued under the 2007
Plan through incentive stock options, or to change the class of
individuals eligible to receive awards under the 2007 Plan, by
the Board of Directors without the consent of the stockholders
of the Company. No change in any award previously granted under
the 2007 Plan may be made which would impair the rights of the
holder of such award without the approval of the holder.
Our compensation committee believes that periodic grants of
stock options are a key component of our executive compensation
program as they further align the long-term interests of
management with those of our investors. Equity grants awarded by
the Company generally vest ratably over four years based on
continued employment and expire ten years from the date of
grant. This vesting feature of our equity grants is designed to
aid in officer retention as this feature provides an incentive
to our executive officers to remain in our employment during the
vesting period. Currently, there is no formal policy for
granting stock options to our executive officers. Rather, such
grants are discretionary and are made by the compensation
committee. In determining the size of equity grants to our
executive officers, our compensation committee considers our
company-level performance, the applicable executive
officers performance, comparative share ownership by
comparable executives of our competitors (based upon a review of
publicly available information), the amount of equity previously
awarded to the applicable executive officer, the vesting of such
awards, and the recommendations of management and any other
consultants or advisors that our compensation committee may
choose to consult.
138
The following table sets forth information regarding the
beneficial ownership of our common stock as of December 1,
2007, and as adjusted to reflect the sale of shares in the
offering by:
|
|
|
|
|
each person known by us to beneficially own more than 5% of our
common stock;
|
|
|
|
each of our directors;
|
|
|
|
|
|
each of our named executive officers; and
|
|
|
|
|
|
all directors and executive officers as a group.
|
Footnote 1 below 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 in the columns under Before Offering are
based on 14,428,164 shares of common stock outstanding as
of December 1, 2007, 287,961 shares of common stock
issuable upon conversion of our Series B Convertible
Preferred Stock (other than the 894,568 shares of
Series B Convertible Preferred Stock held by affiliates of
TA Associates, Inc., which are convertible into
11,798,000 shares of common stock assuming an offering
price based on the mid point of the estimated price range set
forth on the cover of this prospectus), and
2,730,922 shares of common stock subject to options held by
beneficial owners that are exercisable or that will be
exercisable within 60 days of December 1, 2007, after
giving effect to the stock split of our common stock that will
occur immediately prior to the closing of the offering. See
Certain Relationships and Related Party
Transactions Preferred Stock Private Placement with
TA Associates and Description of Capital
Stock. The number of shares of common stock and the
percentages of beneficial ownership in the columns under
After offering are based on 41,245,047 shares
of common stock that will be issued and outstanding immediately
after this offering, after giving effect to the estimated 8.1758
to 1 stock split of our common stock that will occur immediately
prior to the closing of the offering. Amounts contained within
the table 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. The address for each executive officer and
director set forth below, unless otherwise indicated, is
c/o Cardtronics,
Inc., 3110 Hayes Road, Suite 300, Houston, Texas 77082. The
address of each of CapStreet II, L.P. and CapStreet Parallel II,
L.P., and Messrs. Lummis and Brazelton is
c/o The
CapStreet Group, LLC, 600 Travis Street, Suite 6110,
Houston, Texas 77002. The address of TA Associates, Inc. and
Messrs. Wilson and Kafker is
c/o TA
Associates, John Hancock Tower,
56th Floor,
200 Clarendon Street, Boston, Massachusetts 02116.
139
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Maximum
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Number of
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After Offering (Assuming No
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After Offering (Assuming Full
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Shares to
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Exercise of the Underwriters
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Exercise of the Underwriters
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be Sold
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Option to Purchase
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Option to Purchase
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Before Offering
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Upon Exercise
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Additional Shares)
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Additional Shares)
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Number of
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Percent of
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of the
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Number of
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Number of
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Shares of
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Common
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Underwriters
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Shares of
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Percent of
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Shares of
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Percent of
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Common Stock
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Stock
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Option to
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Common Stock
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Common Stock
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Common Stock
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Common Stock
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Beneficially
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Beneficially
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Purchase Additional
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Beneficially
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Beneficially
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Beneficially
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Beneficially
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Name of Beneficial
Owner(1)
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Owned(2)
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Owned
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Shares(2),(3)
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Owned(2)
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Owned
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Owned(2)
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Owned
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5% Stockholders:
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The CapStreet Group,
LLC(4),(5)
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9,299,665
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31.8
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%
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793,424
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9,299,665
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22.5
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%
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8,506,241
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20.6
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%
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TA Associates,
Inc.(6),(7)
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11,798,000
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40.3
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%
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1,006,576
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11,798,000
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28.6
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%
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10,791,424
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26.2
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%
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Ralph H.
Clinard(8),(9)
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2,879,043
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9.8
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%
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2,879,043
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7.0
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%
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2,879,043
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7.0
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%
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Laura
Clinard(10)
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2,879,043
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9.8
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%
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2,879,043
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7.0
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%
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2,879,043
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7.0
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%
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Directors and Executive Officers:
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Fred R.
Lummis(11)
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9,299,665
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31.8
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%
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793,424
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9,299,665
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22.5
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%
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8,506,241
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20.6
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%
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Michael A.R.
Wilson(12)
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11,798,000
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40.3
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%
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1,006,576
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11,798,000
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28.6
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%
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10,791,424
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26.2
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%
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Roger
Kafker(13)
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11,798,000
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40.3
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%
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1,006,576
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11,798,000
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28.6
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%
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10,791,424
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26.2
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%
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Michael H.
Clinard(14)
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1,724,290
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5.9
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%
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1,724,290
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4.2
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%
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1,724,290
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4.2
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%
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J. Chris
Brewster(15)
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398,571
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1.4
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%
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398,571
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1.0
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%
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398,571
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1.0
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%
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Jack Antonini
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326,036
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1.1
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%
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326,036
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*
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326,036
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*
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Thomas E.
Upton(16)
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309,357
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1.1
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%
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309,357
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*
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309,357
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*
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Ronald
Delnevo(17)
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271,510
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*
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271,511
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*
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271,511
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*
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Robert P.
Barone(18)
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35,287
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*
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35,287
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*
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35,287
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*
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Jorge M.
Diaz(19)
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30,659
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*
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30,659
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*
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30,659
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*
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Frederick W. Brazelton
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Rick Updyke
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All directors and executive officers as a group (13 persons)
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27,072,420
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92.6
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%
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1,800,000
|
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27,072,420
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65.6
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%
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25,272,420
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61.3
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%
|
|
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|
|
|
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CapStreet II, L.P.
|
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8,322,646
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28.5
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%
|
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710,067
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8,322,646
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20.2
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%
|
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7,612,579
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18.5
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%
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CapStreet Parallel II, L.P.
|
|
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977,019
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3.3
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%
|
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83,357
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|
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977,019
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2.4
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%
|
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893,662
|
|
|
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2.2
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%
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TA IX,
L.P.(20)
|
|
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7,298,101
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25.0
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%
|
|
|
622,656
|
|
|
|
7,298,101
|
|
|
|
17.7
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%
|
|
|
6,675,445
|
|
|
|
16.2
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%
|
TA/Atlantic and Pacific IV
L.P.(20)
|
|
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1,258,459
|
|
|
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4.3
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%
|
|
|
107,369
|
|
|
|
1,258,459
|
|
|
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3.1
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%
|
|
|
1,151,090
|
|
|
|
2.8
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%
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TA/Atlantic and Pacific V
L.P.(20)
|
|
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2,919,232
|
|
|
|
10.0
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%
|
|
|
249,061
|
|
|
|
2,919,233
|
|
|
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7.1
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%
|
|
|
2,670,171
|
|
|
|
6.5
|
%
|
TA Strategic Partners Fund A
L.P.(20)
|
|
|
149,426
|
|
|
|
*
|
|
|
|
12,749
|
|
|
|
149,426
|
|
|
|
*
|
|
|
|
136,677
|
|
|
|
*
|
|
TA Investors II,
L.P.(20)
|
|
|
145,957
|
|
|
|
*
|
|
|
|
12,453
|
|
|
|
145,957
|
|
|
|
*
|
|
|
|
133,504
|
|
|
|
*
|
|
TA Strategic Partners Fund B
L.P.(20)
|
|
|
26,825
|
|
|
|
*
|
|
|
|
2,288
|
|
|
|
26,825
|
|
|
|
*
|
|
|
|
24,537
|
|
|
|
*
|
|
|
|
|
*
|
|
Less than 1.0% of the 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. For
the purpose of this table, a person or group of persons is
deemed to have beneficial ownership of any shares as
of December 1, 2007, if that person or group has the right
to acquire shares within 60 days after such date.
|
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|
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(2)
|
|
The share information presented
above gives effect to the anticipated stock split and conversion
of the Series B Convertible Preferred Stock into shares of
our common stock in connection with the offering. The stock
split assumes (i) the conversion mechanics applicable to
the Series B Convertible Preferred Stock held by TA
Associates, as described in Certain Relationships and
Related Party Transactions, (ii) the conversion of
the remaining Series B Convertible Preferred Stock into an
equal number of common shares, and (iii) a resulting 8.1758
to 1 stock split for all common shares, which will be effected
immediately prior to the closing of the offering. Such amounts
assume the offering occurs at the mid point of the price range
reflected on the cover of this prospectus.
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|
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(3)
|
|
Assuming the underwriters
option to purchase additional shares from The CapStreet Group,
LLC and TA Associates, Inc. is exercised in full.
|
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|
|
(4)
|
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The shares owned by The CapStreet
Group, LLC are owned through its affiliated funds, CapStreet II,
L.P. and CapStreet Parallel II, L.P.
|
|
(5)
|
|
The address for The CapStreet
Group, LLC and its affiliated funds is
c/o The
CapStreet Group, LLC, 600 Travis Street, Suite 6110,
Houston, Texas 77002.
|
140
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|
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(6)
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The shares owned by TA Associates,
Inc. 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, represent common shares
issuable upon the conversion of Series B Convertible
Preferred Stock into shares of our common stock assuming an
offering price based on the mid point of the estimated price
range set forth on the cover of this prospectus. See
Certain Relationships and Related Party Transactions
and Description of Capital Stock.
|
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(7)
|
|
The address for TA Associates, Inc.
and its affiliated funds is
c/o TA
Associates, John Hancock Tower, 56th Floor, 200 Clarendon
Street, Boston, Massachusetts 02116.
|
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(8)
|
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Mr. Clinard is currently a
member of our Board of Directors.
|
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|
|
(9)
|
|
The shares indicated as being
beneficially owned by Ralph Clinard include
1,243,878 shares owned directly by him, 556,643 shares
owned by four family trusts for the benefit of his children of
which Mr. Clinard is a co-trustee and has shared voting
power, and 1,078,522 shares owned by
Mr. Clinards wife (Laura Clinard) of which
Mr. Clinard may be deemed to be the beneficial owner.
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|
|
(10)
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The shares indicated as being
beneficially owned by Laura Clinard include
1,078,522 shares owned directly by her, 556,643 shares
owned by the Ralph Clinard Family Trust of which
Laura Clinard is a co-trustee and has shared voting power,
and 1,243,878 shares owned by Laura Clinards husband
(Ralph Clinard) of which Laura Clinard may be deemed to be the
beneficial owner.
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(11)
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The shares indicated as being
beneficially owned by Mr. 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, LLC, the ultimate general partner of both 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.
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|
(12)
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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 1,628 shares of our Series B Convertible Preferred
Stock, which are convertible into 21,471 shares of our
common stock assuming an offering price based on the mid point
of the estimated price range set forth on the cover of this
prospectus.
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|
|
(13)
|
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Mr. Kafker serves as a
Managing Director of TA Associates, Inc., the ultimate general
partner of the TA Funds. As such, Mr. Kafker may be deemed
to have a beneficial ownership of the shares owned by the TA
Funds. Mr. Kafker disclaims beneficial ownership of such
shares, except to the extent of his pecuniary interest therein
and 1,605 shares of our Series B Convertible Preferred
Stock, which are convertible into 21,168 shares of our
common stock assuming an offering price based on the mid point
of the estimated price range set forth on the cover of this
prospectus.
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|
|
(14)
|
|
Includes 437,815 shares owned
directly by Michael Clinard and 173,189 options that are
exercisable within 60 days of December 1, 2007. Also
included in the shares indicated as being beneficially owned by
Michael Clinard are 556,643 shares owned by the Ralph
Clinard Family Trust and 556,643 shares owned by four
trusts for the benefit of Ralph Clinards children, each of
which trusts Michael Clinard is a co-trustee of and has shared
voting power of and of which he may be deemed to be the
beneficial owner.
|
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|
|
(15)
|
|
Includes 398,571 options that
are exercisable within 60 days of December 1, 2007.
|
|
|
|
(16)
|
|
Includes 213,422 options that
are exercisable within 60 days of December 1, 2007.
|
|
|
|
(17)
|
|
Includes 107,994 shares of our
Series B Convertible Preferred stock which are convertible
into our common stock on a share for share basis and
163,516 options that are exercisable within 60 days of
December 1, 2007.
|
|
|
|
(18)
|
|
Includes 35,287 options that
are exercisable within 60 days of December 1, 2007.
|
|
|
|
(19)
|
|
Includes 30,659 options that
are exercisable within 60 days of December 1, 2007.
|
|
|
|
(20)
|
|
Represents common shares issuable
upon the conversion of Series B Convertible Preferred Stock
into shares of our common stock assuming an offering price based
on the midpoint of the estimated price range set forth on the
cover of this prospectus. See Certain Relationships and
Related Party Transactions and Description of
Capital Stock.
|
141
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Preferred Stock
Private Placement with TA Associates
In February 2005, we issued 894,568 shares of our
Series B Convertible Preferred Stock to investment funds
controlled by TA Associates, Inc. (the TA Funds) for
a per share price of $83.8394 resulting in aggregate gross
proceeds of $75.0 million. In connection with this
offering, we also appointed Michael Wilson and Roger Kafker, who
are designees of the TA Funds to our board of directors.
Approximately $24.8 million of the net proceeds of this
offering were used to redeem all of the outstanding shares of
our Series A Preferred Stock from affiliates of The
CapStreet Group, LLC. The remaining net proceeds were used to
repurchase approximately 24% of our outstanding shares of common
stock and vested options to purchase our common stock at a price
per share of $83.8394, pursuant to an offer to purchase such
shares of stock from all of our stockholders on a pro rata
basis. As part of this transaction, we repurchased
353,878 shares of our common stock from affiliates of
CapStreet for $29.7 million. We also repurchased shares of
common stock from our executive officers and directors as
described below under Transactions with Our
Directors and Officers.
In addition to the Series B Convertible Preferred Stock
issued to the TA Funds, the Company issued $3.0 million of
Series B Convertible Preferred Stock, at the same per share
price ($83.8394) as the price paid by the TA Funds, as partial
consideration in our May 2005 acquisition of Bank Machine.
In connection with obtaining the approval of TA Funds to the
July 2007 7-Eleven ATM Transaction, we modified the original
conversion ratio applicable to the TA Funds Series B
Preferred Stock so that the common stock issuable upon
conversion thereof, at the time of an initial public offering of
the Company, would be valued at no less than $131,250,000 (175%
of the TA Funds original $75 million cost of the
Series B Convertible Preferred Stock). This modification
was contained in our amended Certificate of Incorporation filed
on July 19, 2007. Importantly, the conversion price
modification gave us the ability to require the conversion of
the Series B Convertible Preferred Stock to common stock in
connection with an initial public offering even if the IPO per
share price would not itself give the TA Funds common shares
with a $131,250,000 value. Our stockholders who received
Series B Convertible Preferred Stock in connection with the
Bank Machine acquisition agreed that the conversion price
modification would only apply to holders of at least
100,000 shares of Series B Convertible Preferred Stock.
In connection with this offering, the terms of the Series B
Convertible Preferred Stock held by the TA Funds have been
further amended so that at an assumed initial public offering
price below $12.00 per share, the TA Funds have agreed to
receive common shares with a value of less than $131,250,000.
Pursuant to this amendment and assuming an initial public
offering price at the mid-point of the range, each share of
Series B Convertible Preferred Stock held by the TA Funds
will convert into 1.6131 shares of common stock so that the
shares of common stock held by the TA Funds will represent 44.5%
of our pre-IPO outstanding common shares (the Pre-IPO
Common Stock Pool). All other shares of Series B
Convertible Preferred Stock will convert on a one for one basis.
Following the conversion of the Series B Convertible
Preferred Stock, we will effect a 8.1758 to 1 common stock
split to result in the total
post-offering
capitalization reflected in this prospectus. These conversion
mechanics do not increase the number of shares of our common
stock in the Pre-IPO Common Stock Pool.
To the extent our shares are priced either above or below the
assumed midpoint of the range, both the conversion ratio of our
Series B Convertible Preferred Stock and our stock split
will adjust to provide TA Funds the pricing protection to which
it is entitled without changing the total number of shares of
common stock we will have outstanding or diluting the investors
in this offering.
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Investors
Agreement
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 investor agreement
relating to several matters, only the registration rights
provision of which will continue to be in force upon the
completion of this offering. The material terms of that
agreement are set forth below.
Registration Rights. The investors agreement
grants CapStreet II, L.P. (on behalf of itself, CapStreet
Parallel II, L.P. and permitted transferees thereof) and TA
Associates, Inc. (TA Associates) 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
will be 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 of these registration rights are subject to conditions and
limitations, which include certain rights to limit the number of
shares included in a registration under some circumstances.
Transactions with
our Directors and Officers
General. Each of our independent Board
members, unless otherwise indicated in the Compensation
Discussion and AnalysisDirector Compensation, are
paid a fee of $1,000 per Board meeting attended. Furthermore,
all Board members are reimbursed for customary travel expenses
and meals.
Fred R. Lummis, the Chairman of our Board of Directors,
is a senior advisor to The CapStreet Group, LLC, the ultimate
general partner of CapStreet II and CapStreet Parallel II,
the Companys primary stockholders.
Michael Wilson and Roger Kafker, both of whom are
on our Board of Directors, are managing directors of TA
Associates, affiliates of which are Cardtronics
stockholders and own a majority of the Companys
outstanding Series B Convertible Preferred Stock. See
Preferred Stock Private Placement with TA
Associates above.
Jorge Diaz, a member of our Board of Directors, is the
President and Chief Executive Officer of Personix, a division of
Fiserv. In 2006, both Personix (though indirectly) and Fiserv
provided third party services during the normal course of
business for Cardtronics. Amounts paid to Personix and Fiserv
represented less than 0.2% of the Companys total operating
and selling, general and administrative expenses for the year.
Subscriptions Receivable. The Company
currently has loans outstanding with certain employees related
to past exercises of employee stock options and purchases of the
Companys common stock, as applicable. Such loans, which
were initiated in 2003, are reflected as subscriptions
receivable in the consolidated balance sheets contained
elsewhere within this prospectus. The rate of interest on each
of these loans is 5% per annum. In connection with the
investment by TA Associates in February 2005 and the concurrent
redemption of a portion of the Companys common stock,
approximately $0.4 million of the outstanding loans were
repaid to the Company. Additionally, in the third quarter of
2006, the Company repurchased 15,255 shares of the
Companys common stock held by certain of the
Companys executive officers for approximately
$1.3 million in proceeds. Such proceeds were primarily
utilized by the executive officers to repay the majority of the
above-discussed subscriptions
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receivable, including all accrued and unpaid interest related
thereto. Such loans were required to be repaid pursuant to SEC
rules and regulations prohibiting registrants from having loans
with executive officers. As a result of the repayments, the
total remaining amount outstanding under such loans, including
accrued interest, was approximately $0.3 million as of
December 31, 2006 and September 30, 2007.
Restricted Stock. Pursuant to a restricted
stock agreement dated January 20, 2003, the Company sold
Jack Antonini, President and Chief Executive Officer of the
Company, 80,000 shares of common stock in exchange for a
promissory note in the amount of $940,800, or $11.76 per share.
The agreement permitted the Company to repurchase a portion of
such shares prior to January 20, 2007 in certain
circumstances. The agreement also contained a provision allowing
the shares to be put to the Company in an amount
sufficient to retire the entire unpaid principal balance of the
promissory note plus accrued interest. On February 4, 2004,
the Company amended the restricted stock agreement to remove
such put right. The Company recognized approximately
$0.2 million, $0.5 million, and $0.9 million in
compensation expense in the accompanying consolidated statements
of operations for the years ended December 31, 2006, 2005,
and 2004, respectively, and approximately $11,000 during the
first nine months of 2007, associated with such restricted stock
grant.
Common Stock Repurchase. Pursuant to our offer
to repurchase shares of our common stock using a portion of the
net proceeds from our February 2005 preferred stock offering, we
purchased shares of our common stock from each of our executive
officers and directors at a price per share of $83.8394. We
repurchased 171,638 shares of common stock from our
executive officers and directors for $14.4 million, which
consisted of 9,492 shares repurchased from Jack Antonini,
Chief Executive Officer, President, and Director;
23,453 shares from Michael Clinard, Chief Operating
Officer; 7,956 shares from Thomas Upton, Chief
Administrative Officer; and 130,737 shares from Ralph
Clinard, Director.
Other. Bansi, an entity that owns a minority
interest in our subsidiary Cardtronics Mexico, provided various
ATM management services to Cardtronics Mexico during the normal
course of business in 2006, including serving as the vault cash
provider, bank sponsor, and the landlord for Cardtronics Mexico
as well as providing other services. Amounts paid to Bansi
represented less than 0.1% of the Companys total operating
and selling, general, and administrative expenses for the year.
Approval of
Related Party Transactions
A Related Party Transaction is a transaction,
arrangement or relationship in which we or any of our
subsidiaries was, is or will be a participant, the amount of
which involved exceeds $120,000, and in which any related party
had, has or will have a direct or indirect material interest. A
Related Person means:
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any person who is, or at any time during the applicable period
was, one of our directors;
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any person who is known by us to be the beneficial owner of more
than 5.0% of our common stock;
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any immediate family member of any of the foregoing persons,
which means any child, stepchild, parent, stepparent, spouse,
sibling,
mother-in-law,
father-in-law,
son-in-law,
daughter-in-law,
brother-in-law,
or
sister-in-law
of a director or a more than 5.0% beneficial owner of our common
stock, and any person (other than a tenant or employee) sharing
the household of such director or a more than 5.0% beneficial
owner of our common stock; and
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any firm, corporation or other entity in which any of the
foregoing persons is a partner or principal or in a similar
position or in which such person has a 10.0% or greater
beneficial ownership interest.
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In the ordinary course of business, we may enter into a Related
Party Transaction. The policies and procedures relating to the
approval of Related Party Transactions are not in writing. Given
the relatively small size of our organization, any material
Related Party Transactions entered into generally are known
about and discussed with management and our board of directors
prior to entering into the transaction. Typically, a Related
Party Transaction does not require formal approval by our board
of directors; however, prior to entering into a Related Party
Transaction, the Company determines that such an arrangement is
conducted at arms length and is reasonable and fair to the
Company. Additionally, any material agreement related to our
Mexico operations is reviewed and approved by the board of
directors of our Mexico subsidiary.
In conjunction with our compensation programs, we may enter into
stock-based transactions with our employees. Each grant,
redemption or otherwise is reviewed and approved by the
compensation committee of our board of directors.
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DESCRIPTION
OF CAPITAL STOCK
General
Prior to the closing of this offering, we will further amend and
restate our certificate of incorporation and by-laws to increase
our authorized shares and to add certain other provisions as
described below. In addition, prior to the closing of this
offering our Board of Directors will declare certain stock
dividends that will be contingent upon the closing of this
offering and the conversion of our Series B Convertible
Preferred Stock. The information in this section describes our
third amended and restated certificate of incorporation and our
amended and restated by-laws that will be in effect following
the closing of this offering and assumes that stock split and
Series B preferred stock conversion have taken place.
Our third amended and restated certificate of incorporation will
authorize the issuance of up to 125,000,000 shares of
common stock, par value $0.0001 per share, and
10,000,000 shares of preferred stock, par value $0.0001 per
share.
The following description of the material terms of our capital
stock and our third amended and restated certificate of
incorporation and amended and restated bylaws is only a summary.
You should refer to our third amended and restated certificate
of incorporation and amended and restated bylaws as in effect
upon the closing of this offering, which are included as
exhibits to the registration statement of which this prospectus
is a part.
Common
Stock
As of September 30, 2007, there were 1,764,735 shares of
common stock outstanding, which were held of record by 52
stockholders. Immediately following the closing of this offering
there will be 38,514,125 shares of common stock outstanding.
Voting Rights. The holders of our common stock
are entitled to one vote per share for each share held of record
on any matter to be voted upon by stockholders. Our amended and
restated certificate of incorporation does not provide for
cumulative voting in connection with the election of directors
and, accordingly, holders of more than 50% of the shares voting
will be able to elect all of the directors standing for election.
Dividend Rights. All shares of our common
stock are entitled to share equally in any dividends our board
of directors may declare from legally available sources. Our
credit agreement currently imposes restrictions on our ability
to declare dividends with respect to our capital stock.
Liquidation Rights. Upon liquidation or
dissolution of our company, whether voluntary or involuntary,
all shares of our common stock would be entitled to share
equally in the assets available for distribution to stockholders
after payment of all of our prior obligations, including the
liquidation preference and unpaid dividends, if any, on our
preferred stock.
Other Matters. The holders of our common stock
have no preemptive or conversion rights and our common stock is
not subject to further calls or assessments by us. There are no
redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of our common stock, including the
common stock offered in this offering, are fully paid and
non-assessable.
Preferred
Stock
As of September 30, 2007, there were 929,789 shares of
Series B Convertible Preferred Stock outstanding, which were
held of record by 10 stockholders. Concurrently with the
completion of this offering, the 894,568 shares of
preferred stock held by TA Associates and the 35,221 shares
of preferred stock not held by TA Associates will convert into
shares of
146
common stock. Consequently, no shares of preferred stock will be
outstanding immediately following the completion of this
offering and we have no immediate plans to issue any preferred
stock.
The shares of preferred stock may be issued from time to time at
the discretion of our board of directors without stockholder
approval. The board of directors is authorized to issue these
shares in different classes and series and, with respect to each
class or series, to determine the dividend rate, the redemption
provisions, conversion provisions, liquidation preference and
other rights and privileges not in conflict with our third
amended and restated certificate of incorporation. The issuance
of any of our preferred stock could provide needed flexibility
in connection with possible acquisitions and other corporate
purposes. However, any issuance could also make it more
difficult for a third party to acquire a majority of our
outstanding voting stock or discourage an attempt by a third
party to gain control of us. In addition, our board of
directors, without stockholder approval, can issue shares of
preferred stock with voting and conversion rights that could
adversely affect the voting power and other rights of the
holders of common stock. The listing requirements of The Nasdaq
Global Market, which would apply so long as the common stock is
listed on The Nasdaq Global Market, require stockholder approval
of certain issuances of capital stock or securities exchangeable
or convertible into 20% or more of the then outstanding voting
power of then outstanding number of shares of common stock. Any
such additional shares may be used for a variety of corporate
purposes, including future public offerings, to raise additional
capital or to facilitate acquisitions.
Directors
Exculpation and Indemnification
Our third amended and restated certificate of incorporation
provides that none of our directors will be liable to us or our
stockholders for monetary damages for any breach of fiduciary
duty as a director, except to the extent otherwise required by
the Delaware General Corporation Law, or the DGCL. The effect of
this provision is to eliminate our rights, and our
stockholders rights, to recover monetary damages against a
director for breach of a fiduciary duty of care as a director,
except to the extent otherwise required by the DGCL. This
provision does not limit or eliminate our right, or the right of
any stockholder, to seek non-monetary relief, such as an
injunction or rescission in the event of a breach of a
directors duty of care. In addition, our amended and
restated certificate of incorporation provides that, if the DGCL
is amended to authorize the further elimination or limitation of
the liability of a director, then the liability of the directors
will be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended. These provisions will not alter the
liability of directors under federal or state securities laws.
We have entered into indemnification agreements with each of our
directors and key officers. These indemnification agreements
provide that we will indemnify our directors and officers to the
fullest extent permitted by law for liabilities they may incur
because of their status as directors and officers. These
agreements also provide that we will advance expenses to our
directors and officers relating to claims for which they may be
entitled to indemnification. These indemnification agreements
also provide that we will maintain directors and
officers liability insurance.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling us under the provisions described above, we
have been informed that, in the opinion of the SEC, this
indemnification is against public policy, as expressed in the
Securities Act and is therefore unenforceable.
147
Certain
Provisions of Our Certificate of Incorporation and
Bylaws
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 an interested stockholder, defined as a person who owns
15% or more of our outstanding voting stock, from engaging in
business combinations with us for three years following the time
that such person becomes an interested stockholder. These
restrictions do not apply if:
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before the person becomes an interested stockholder, our board
of directors approves the business combination or the
transaction in which the person becomes an interested
stockholder;
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upon completion of the transaction that results in such person
becoming an interested stockholder, the interested stockholder
owns at least 85% of our outstanding voting stock at the time
the transaction commenced, excluding for the purposes of
determining the number of shares outstanding, those shares owned
by persons who are directors and officers, as well as shares
held by employee stock plans in which employee participants do
not have the right to determine confidentially whether shares
held by such plan will be tendered in a tender or exchange
offer; or
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at or following the time of the transaction in which the person
became an interested stockholder, the business combination is
approved by our board of directors and authorized at an annual
or special meeting of our stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of our
outstanding voting stock not owned by the interested stockholder.
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In addition, the law does not apply to interested stockholders
such as The CapStreet Group, TA Associates or Mr. Ralph
Clinard, who became an interested stockholder before our common
stock was listed on The Nasdaq Global Market.
The law defines the term business combination to
encompass a wide variety of transactions with or caused by an
interested stockholder, including mergers, asset sales and other
transactions in which the interested stockholder receives or
could receive a benefit on other than a pro rata basis with
other stockholders. This law could have an anti-takeover effect
with respect to transactions not approved in advance by our
board of directors, including discouraging takeover attempts
that might result in a premium over the market price for shares
of our common stock.
Election and Removal of Directors. Our third
amended and restated certificate of incorporation and amended
and restated bylaws provide for the division of our board of
directors into three classes as nearly equal in size as possible
and with staggered three-year terms. Any vacancy on our board of
directors, including a vacancy resulting from an enlargement of
our board of directors, may be filled only by the vote of a
majority of the directors then in office. The classification of
our board of directors and the limitation on filling of
vacancies could make it more difficult for a third party to
acquire, or discourage a third party from attempting to acquire,
control of our company.
Board Meetings. Our amended and restated
bylaws provide that special meetings of the board of directors
may be called only by the chairman of our board of directors,
our chief executive officer or a majority of the directors in
office.
Stockholder Meetings. Our amended and restated
bylaws provide that any action required or permitted to be taken
by our stockholders at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before
such meeting and may not be taken by written action in lieu of a
meeting. Our bylaws further provide that special meetings of the
stockholders may only be called by the chairman of our board of
directors, by
148
a committee that is duly designated by the board or by
resolution adopted by the affirmative vote of the majority of
the board of directors.
Requirements for Advance Notification of Stockholder
Nominations and Proposals. Our amended and
restated bylaws establish advance notice procedures with respect
to stockholder proposals and the nomination of candidates for
election as directors, other than nominations made by or at the
direction of our board of directors or a committee of the board
of directors. In order for any matter to be considered
properly brought before a meeting, a stockholder
must comply with requirements regarding advance notice and
provide certain information to us. These provisions could have
the effect of delaying until the next stockholders meeting
stockholder actions that are favored by the holders of a
majority of our outstanding voting securities. These provisions
could also discourage a third party from making a tender offer
for our common stock, because even if it acquired a majority of
our outstanding voting securities, it would be able to take
action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders
meeting and not by written consent.
Stockholder Action by Written Consent. Our
third amended and restated certificate of incorporation and
amended and restated bylaws provide that stockholder action may
be taken only at a duly called annual or special meeting of
stockholders of our common stock.
Cumulative Voting. Our third amended and
restated certificate of incorporation provides that our
stockholders will have no cumulative voting rights.
Amendment of Certificate of Incorporation and
Bylaws. Amendment of the provisions described
above in our third amended and restated certificate of
incorporation generally will require the affirmative vote of a
majority of our directors, and in certain cases the affirmative
vote of the holders of at least
662/3%
of our then outstanding voting stock. Our amended and restated
bylaws may be amended (i) by the affirmative vote of the
majority of our board of directors, or (ii) the affirmative
vote of holders of a majority of our outstanding stock, except
that amendments to certain provisions of our bylaws concerning
our board of directors or stockholder action by written consent
require the affirmative vote of holders of at least
662/3%
of our then outstanding voting stock.
Nasdaq Trading
Our common stock has been approved for listing on The Nasdaq
Global Market under the symbol CATM.
Transfer Agent
and Registrar
The transfer agent and registrar issues stock certificates and
keeps track of the registered holders of our stock. Our transfer
agent and registrar is Wells Fargo Bank, National Association.
149
SHARES
ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for
our common stock. Future sales of substantial amounts of our
common stock in the public market, or the possibility of these
sales, could adversely affect the trading price of our common
stock and could impair our future ability to raise capital
through the sale of our equity at a time and price we deem
appropriate.
Upon completion of this offering, we will have
38,514,125 outstanding shares of common stock. Of these
shares, the 12,000,000 shares sold in this offering will be
freely tradable without restriction or further registration
under the Securities Act, except for any shares purchased by our
affiliates, as defined in Rule 144 under the
Securities Act, which would be subject to the limitations and
restrictions described below.
Assuming the underwriters over-allotment option is not
exercised, the remaining 26,514,125 shares of common stock
that will be held by existing stockholders will be
restricted securities, as defined in Rule 144.
Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration
under Rules 144 and 144(k) promulgated under the Securities
Act, which rules are summarized below. These restricted
securities will be held by existing stockholders who are all
parties to an investors agreement. That agreement provides The
CapStreet Group and TA Associates with the right, after the
expiration of the
lock-up
agreements described in Underwriting, to require us
to register their shares, which will consist of
21,097,665 shares upon completion of the offering. In
addition, if we propose to register, or are required to register
following the exercise of a demand registration
right as described in the previous sentence, any of our shares
of common stock under the Securities Act, all of our
stockholders that are parties to the investors agreement will be
entitled to include their shares of common stock in that
registration. For a description of the investors agreement, see
Certain Relationships and Related Party Transactions
Investors Agreement.
Subject to the
lock-up
agreements described in Underwriting and the
provisions of Rules 144 and 144(k), the restricted
securities will be available for sale in the public market as
follows:
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Number of
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Shares
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Date
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985,310
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As of the date of this prospectus.
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After 90 days from the date of this prospectus.
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25,528,815
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After 180 days from the date of this prospectus.
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All of these restricted securities will be eligible for sale in
the public market, subject in some cases to the volume
limitations and other restrictions of Rule 144, beginning
upon expiration of the
lock-up
agreements described in Underwriting. The numbers of
shares of common stock listed above do not include
5,101,911 shares of common stock issuable upon exercise of
stock options granted under our stock plans that were
unexercised as of December 1, 2007. Upon completion of the
offering, we intend to file a registration statement on
Form S-8
with the SEC to register 8,413,218 shares of our common
stock reserved for issuance or sale under our incentive stock
plans. As of December 1, 2007, there were outstanding
options to purchase a total of 5,101,911 shares of common
stock of which 2,730,922 were vested. Shares of common stock
issuable upon the exercise of options granted or to be granted
under our stock option plans will be freely tradable without
restriction under the Securities Act, unless such shares are
held by an affiliate of ours.
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Rule 144
In general, under Rule 144 as currently in effect,
beginning 90 days after this offering, a person (or persons
whose shares are required to be aggregated), including an
affiliate, who has beneficially owned shares of our common stock
for at least one year is entitled to sell in any three-month
period a number of shares that does not exceed the greater of:
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1% of then outstanding shares of common stock, or
385,141 shares; and
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the average weekly trading volume in the common stock on The
Nasdaq Global Market during the four calendar weeks preceding
the date on which notice of sale is filed, subject to
restrictions.
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Sales under Rule 144 are also subject to manner of sale
provisions and notice requirements and to the availability of
current public information about us.
On December 6, 2007, the SEC issued its final rule
amendments to Rule 144 which will become effective
60 days after they are published in the Federal Register.
The amendments will shorten the initial holding period described
above from one year to six months. Accordingly, upon
effectiveness of the amendments to Rule 144, additional
shares of our common stock will become eligible for sale due to
the reduced holding period. In addition, these amendments
provide that sales made after such holding period need not
comply with the volume limitation, manner of sale or notice
provisions described above, provided that a person making such
sale is not deemed to have been one of our affiliates at the
time of, or at any time during the three months preceding, a
sale. Affiliates will still be subject to the volume limitation,
manner of sale and notice provisions. Such sales must comply
with the public information provision of Rule 144 until our
common stock has been held for one year.
Rule 144(k)
In addition, under Rule 144(k) as currently in effect, a
person who is not deemed to have been an affiliate of ours at
any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least
two years, would be entitled to sell those shares without regard
to the manner of sale, public information, volume limitation or
notice requirements of Rule 144. To the extent that our
affiliates sell their shares, other than pursuant to
Rule 144 or a registration statement, the purchasers
holding period for the purpose of effecting a sale under
Rule 144 commences on the date of transfer from the
affiliate.
As discussed above, the SEC has adopted amendments to
Rule 144 which will, upon their effectiveness, eliminate
Rule 144(k) and permit non-affiliates to sell restricted
shares without complying with the volume or manner of sale
restrictions after the six-month initial holding period.
Rule 701
In general, under Rule 701 of the Securities Act, any of
our employees, consultants or advisors who received shares from
us in connection with a qualified compensatory stock plan or
other written agreement would be eligible to resell those shares
90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with many of
the restrictions, including the holding period, contained in
Rule 144. Our affiliates, as that term is
defined in Rule 144, would be able to resell these shares
under Rule 701 without compliance with the holding period
contained in Rule 144, but would have to comply with
certain other restrictions, including the volume limitations,
included in Rule 144. Shares received in our corporate
reorganization in exchange for shares received from our
predecessor by employees, consultants or advisors in connection
with a qualified compensatory stock plan or other written
agreement may not be eligible for resale in reliance on
Rule 701. As a result, these stockholders may not be able
to rely on Rule 701 and, in order to sell such shares in
the public market would
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need to either register such sale or qualify for an exemption
under Rule 144 or Rule 144(k) as described above. We
do not currently intend to request a no action
letter or other interpretation from the SEC regarding the
eligibility of Rule 701 following our corporate
reorganization.
Lock-Up
Agreements
In connection with this offering, we, each of our officers and
directors, certain stockholders who will sell shares of our
stock upon the underwriters exercise of the over-allotment
option, and other stockholders owning more than 1% of our stock
have agreed not to offer, sell, contract to sell or otherwise
dispose of, or enter into any transaction that is designed to,
or could be expected to, result in the disposition of any shares
of our common stock or other securities convertible into or
exchangeable or exercisable for shares of our common stock or
derivatives of our common stock owned by these persons prior to
this offering or common stock issuable upon exercise of options
held by these persons for a period of 180 days after the
effective date of the registration statement of which this
prospectus is a part, without the prior written consent of the
representatives of the underwriters. See
Underwriting.
Stock
Options
As of December 1, 2007, and assuming a stock split of our
common shares and options at a rate of 8.1758:1, options to
purchase a total of 5,101,911 shares of common stock were
outstanding under our stock plans, of which options to purchase
2,730,922 shares were exercisable. Upon the expiration of
the lock-up
agreements described above, at least 3,268,482 shares of
common stock will be subject to vested options. Accordingly,
shares issued upon the exercise of stock options granted under
the 2001 Stock Incentive Plan, which are being registered under
that registration statement, will, giving effect to vesting
provisions and, with respect to our affiliates as
that term is defined in Rule 144, in accordance with the
applicable restrictions, including volume limitations contained
in Rule 144, be eligible for resale in the public market
from time to time immediately after the
lock-up
agreements referred to above expire.
Effect of Sales
of Shares
Prior to this offering, there has been no public market for our
common stock, and no prediction can be made as to the effect, if
any, that market sales of shares of common stock or the
availability of shares for sale will have on the market price of
our common stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of our common stock in
the public market after the completion of this offering could
adversely affect the market price of our common stock and could
impair our future ability to raise capital through an offering
of our equity securities.
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MATERIAL
UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS
The following discussion is a summary of material United States
federal income and estate tax considerations applicable to
non-U.S. holders
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, Treasury regulations, rulings and pronouncements of the
Internal Revenue Service or IRS, and judicial decisions as of
the date of this prospectus. 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. 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:
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an individual who is a citizen or resident of the United States;
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a partnership, or any other entity treated as a partnership for
United States federal income tax purposes;
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a corporation, or any other entity taxable 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;
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an estate whose income is subject to United States federal
income taxation regardless of its source; or
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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.
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An individual is treated as a resident of the United States in
any calendar year for United States federal income tax purposes
if the individual is present in the United States for at least
31 days in that calendar year and for an aggregate of at
least 183 days during the three-year period ending on the
last day of the current calendar year. For purposes of the
183-day
calculation, all of the days present in the current year,
one-third of the days present in the immediately preceding year,
and one-sixth of the days present in the second preceding year
are counted. Residents are taxed for United States federal
income tax purposes as if they were United States citizens.
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
153
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
OWN 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
Distributions on our common stock 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
zero, and then the excess, if any, will be treated as gain from
the sale of common stock.
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 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
was a United States person as defined under the Internal Revenue
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 Internal Revenue Code and is
eligible for treaty benefits. Special certification and other
requirements apply to certain
non-U.S. holders
that are pass-through entities and to
non-U.S. holders
whose stock is held through certain foreign intermediaries.
A
non-U.S. holder
of our common stock eligible for a reduced rate of United States
withholding tax pursuant to a treaty 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 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 Internal Revenue
Code,
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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.
Information
Reporting and Backup Withholding
Dividends paid to a
non-U.S. holder
may be subject to information reporting and United States backup
withholding. 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 a
non-U.S. person
or otherwise meets documentary evidence requirements for
establishing that such stockholder is a
non-U.S. person
or otherwise qualifies for 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:
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is a United States person for United States tax purposes;
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derives 50% or more of its gross income in specific periods from
the conduct of a trade or business in the United States;
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is a controlled foreign corporation for United
States tax purposes; or
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is a foreign partnership, if at any time during its tax year (1)
one or more of its partners are United States persons who in the
aggregate hold more than 50% of the income or capital interests
in the partnership; or (2) the foreign partnership is engaged in
a United States trade or business,
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155
unless the broker has documentary evidence in its files that the
non-U.S. holder
is a
non-U.S. person
and certain other conditions are met, or the
non-U.S. holder
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 by timely filing a properly
completed claim for refund with the IRS.
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Subject to the terms and conditions of the underwriting
agreement, the underwriters named below, through their
representatives Deutsche Bank Securities Inc., William
Blair & Company, L.L.C., and Banc of America
Securities LLC, have severally agreed to purchase from us the
following respective number of shares of common stock at a
public offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus:
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Number of
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Underwriters
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Shares
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Deutsche Bank Securities Inc.
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William Blair & Company, L.L.C.
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Banc of America Securities LLC
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J.P. Morgan Securities Inc.
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Piper Jaffray & Co.
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RBC Capital Markets Corporation
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Total
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12,000,000
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The underwriting agreement provides that the obligations of the
several underwriters to purchase the shares of common stock
offered hereby are subject to certain conditions precedent and
that the underwriters will purchase all of such shares of common
stock, other than those covered by the over-allotment option
described below, if any of these shares are purchased.
We have been advised by the representatives of the underwriters
that the underwriters propose to offer the shares of common
stock to the public at the public offering price set forth on
the cover of this prospectus and to dealers at a price that
represents a concession not in excess of
$ per share under the public
offering price. The underwriters may allow, and these dealers
may re-allow, a concession of not more than
$ per share to other dealers.
After the initial public offering, the representatives of the
underwriters may change the offering price and other selling
terms.
The TA Funds and The CapStreet Group have granted to the
underwriters an option, exercisable not later than 30 days
after the date of this prospectus, to purchase up to 1,800,000
additional shares of common stock at the public offering price
less the underwriting discounts and commissions set forth on the
cover page of this prospectus. The underwriters may exercise
this option only to cover over-allotments made in connection
with the sale of the common stock offered by this prospectus. To
the extent that the underwriters exercise this option, each of
the underwriters will become obligated, subject to conditions,
to purchase approximately the same percentage of these
additional shares of common stock as the number of shares of
common stock to be purchased by it in the above table bears to
the total number of shares of common stock offered by this
prospectus. The TA Funds and The CapStreet Group will be
obligated, pursuant to the option, to sell these additional
shares of common stock to the underwriters to the extent the
option is exercised. If any additional shares of common stock
are purchased, the underwriters will offer the additional shares
on the same terms as those on which the 12,000,000 shares
are being offered.
The underwriting discounts and commissions per share are equal
to the public offering price per share of common stock less the
amount paid by the underwriters to us per share of common stock.
The underwriting discounts and commissions
are % of the initial public
offering price. We have agreed to pay the underwriters the
following discounts and
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commissions, assuming either no exercise or full exercise by the
underwriters of the underwriters over-allotment option:
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Total Fees
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Without Exercise of
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With Exercise of
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Fee per share
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Over-Allotment Option
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Over-Allotment Option
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Discounts and commissions paid by us
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$
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$
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$
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In addition, we estimate that our share of the total expenses of
this offering, excluding underwriting discounts and commissions,
will be approximately $1.5 million.
We and the certain stockholders who will sell shares upon the
underwriters exercise of the over-allotment option as set
forth above have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities
Act, and to contribute to payments the underwriters may be
required to make in respect of any of these liabilities.
Except as described below, we, each of our officers and
directors, The TA Funds and The CapStreet Group and other
stockholders owning more than 1% of our stock have agreed not to
offer, sell, contract to sell or otherwise dispose of, or enter
into any transaction that is designed to, or could be expected
to, result in the disposition of any shares of our common stock
or other securities convertible into or exchangeable or
exercisable for shares of our common stock or derivatives of our
common stock owned by these persons prior to this offering or
common stock issuable upon exercise of options or warrants held
by these persons for a period of 180 days after the
effective date of the registration statement of which this
prospectus is a part without the prior written consent of the
representatives of the underwriters. This consent may be given
at any time without public notice. Transfers or dispositions can
be made during the
lock-up
period in the case of gifts or for estate planning purposes
where the donee signs a
lock-up
agreement. There are no agreements between the representative
and any of our stockholders or affiliates releasing them from
these
lock-up
agreements prior to the expiration of the 180-day period. The
representative has agreed that the Company may issue shares of
common stock during the lock-up period in an aggregate amount
not to exceed 5% of the Companys outstanding shares of
common stock after giving effect to the issuance or sale of
common stock in this offering in connection with an acquisition
by the Company of any business, products or technologies
provided that the holders of any shares of common stock issued
pursuant to this provision shall agree to the restrictions
discussed above for a period that shall not exceed the remainder
of the 180-day restricted period.
The 180-day restricted period under the agreements with the
underwriters described in the preceding paragraph will be
automatically extended if: (1) during the last 17 days
of the 180-day restricted period we release earnings results or
material news or a material event relating to us occurs; or
(2) prior to the expiration of the 180-day restricted
period, we announce that we will release earnings results during
the 16-day
period following the last day of the 180-day period, in which
case the restrictions described in the preceding paragraph will
continue to apply until the expiration of the
18-day
period beginning on the release of the earnings results or
material news or the occurrence of a material event relating to
us.
The representatives of the underwriters has advised us that the
underwriters do not intend to confirm sales to any account over
which they exercise discretionary authority.
In connection with the offering, the underwriters may purchase
and sell shares of our common stock in the open market. These
transactions may include short sales, purchases to cover
positions created by short sales and stabilizing transactions.
Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the
offering. Covered short sales are sales made in an amount not
greater than the underwriters option to purchase
additional shares of common stock from us in the offering. The
underwriters may close out any covered short position by either
exercising their option to purchase additional shares or
purchasing shares in the open market. In
158
determining the source of shares to close out the covered short
position, 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 any sales 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 underwriters are concerned that
there may be downward pressure on the price of the shares in the
open market prior to the completion of the offering.
Stabilizing transactions consist of various bids for or
purchases of our common stock made by the underwriters in the
open market prior to the completion of the offering.
The underwriters may impose a penalty bid. This occurs when a
particular underwriter repays to the other underwriters a
portion of the underwriting discount received by it because the
representatives of the underwriters have repurchased shares sold
by or for the account of that underwriter in stabilizing or
short covering transactions.
Purchases to cover a short position and stabilizing transactions
may have the effect of preventing or slowing a decline in the
market price of our common stock. Additionally, these purchases,
along with the imposition of the penalty bid, may stabilize,
maintain or otherwise affect the market price of our common
stock. As a result, the price of our common stock may be higher
than the price that might otherwise exist in the open market.
These transactions may be effected on The Nasdaq Global Market,
in the over-the-counter market or otherwise.
At our request, the underwriters have reserved for sale at the
initial public offering price up to 480,000 shares of our
common stock being sold in this offering for our vendors,
employees, family members of employees, customers and other
third parties. The number of shares of our common stock
available for the sale to the general public will be reduced to
the extent these reserved shares are purchased. Any reserved
shares not purchased by these persons will be offered by the
underwriters to the general public on the same basis as the
other shares in this offering. Shares purchased that have been
reserved under this program will not be subject to any
lock-up period as described above.
Each underwriter intends to comply with all applicable laws and
regulations in each jurisdiction in which it acquires, offers,
sells or delivers shares of common stock or has in its
possession or distributes the prospectus.
In relation to each Member State of the European Economic Area
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 of the shares of common
stock to the public may not be made in that Relevant Member
State prior to the publication of a prospectus in relation to
the shares of common stock which has been approved by the
competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and
notified to the competent authority in that Relevant Member
State, all in accordance with the Prospectus Directive, except
that an offer to the public in that Relevant Member State of any
the shares of common stock may be made at any time under the
following exemptions under the Prospectus Directive if they have
been implemented in the Relevant Member State:
(a) to legal entities which are authorised or regulated to
operate in the financial markets or, if not so authorised or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (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 annual or
consolidated accounts; or
(c) in any other circumstances falling within
Article 3 (2) of the Prospectus Directive,
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provided that no such offer of the shares of common stock shall
result in a requirement for the publication by the company or
any underwriter of a prospectus pursuant to Article 3 of
the Prospectus Directive.
For the purposes of this provision, the expression an
offer of the shares of common stock to the public in
relation to any shares of common stock 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 the shares
of common stock to be offered so as to enable an investor to
decide to purchase or subscribe the shares of common stock, 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.
No prospectus (including any amendment, supplement or
replacement thereto) has been prepared in connection with the
offering of the shares of common stock that has been approved by
the Autorité des marchés financiers or by the
competent authority of another State that is a contracting party
to the Agreement on the European Economic Area and notified to
the Autorité des marchés financiers; no shares of
common stock have been offered or sold and will be offered or
sold, directly or indirectly, to the public in France except to
permitted investors (Permitted Investors) consisting
of persons licensed to provide the investment service of
portfolio management for the account of third parties, qualified
investors (investisseurs qualifiés) acting for their own
account
and/or
investors belonging to a limited circle of investors (cercle
restreint dinvestisseurs) acting for their own account,
with qualified investors and limited circle of
investors having the meaning ascribed to them in
Articles L.
411-2, D.
411-1, D.
411-2, D.
411-4, D.
734-1, D.
744-1, D.
754-1 and D.
764-1 of the
French Code Monétaire et Financier and applicable
regulations thereunder; none of this prospectus or any other
materials related to the offering or information contained
therein relating to the shares of common stock has been
released, issued or distributed to the public in France except
to Permitted Investors; and the direct or indirect resale to the
public in France of any shares of common stock acquired by any
Permitted Investors may be made only as provided by
Articles L.
411-1, L.
411-2, L.
412-1 and L.
621-8 to L.
621-8-3 of
the French Code Monétaire et Financier and applicable
regulations thereunder.
In addition:
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an invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services
and Markets Act 2000) has only been communicated or caused
to be communicated and will only be communicated or caused to be
communicated) in connection with the issue or sale of the shares
of common stock in circumstances in which Section 21(1) of
the FSMA does not apply to us; and
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all applicable provisions of the FSMA have been complied with
and will be complied with, with respect to anything done in
relation to the shares of common stock in, from or otherwise
involving the United Kingdom.
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This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom or
(ii) to investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(iii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons). The
shares of common stock are only available to, and any
invitation, offer or agreement to subscribe, purchase or
otherwise acquire such shares of common stock will be engaged in
only with, relevant persons. Any person who is not a relevant
person should not act or rely on this document or any of its
contents.
The offering of the shares of common stock has not been cleared
by the Italian Securities Exchange Commission (Commissione
Nazionale per le Società e la Borsa, the
CONSOB) pursuant to Italian securities legislation
and, accordingly, the shares of common stock may not
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and will not be offered, sold or delivered, nor may or will
copies of the prospectus or any other documents relating to the
shares of common stock be distributed in Italy, except
(i) to professional investors (operatori qualificati), as
defined in Article 31, second paragraph, of CONSOB
Regulation No. 11522 of July 1, 1998, as amended,
(the Regulation No. 11522), or
(ii) in other circumstances which are exempted from the
rules on solicitation of investments pursuant to
Article 100 of Legislative Decree No. 58 of
February 24, 1998 (the Financial Service Act)
and Article 33, first paragraph, of CONSOB
Regulation No. 11971 of May 14, 1999, as amended.
Any offer, sale or delivery of the shares of common stock or
distribution of copies of the prospectus or any other document
relating to the shares of common stock in Italy may and will be
effected in accordance with all Italian securities, tax,
exchange control and other applicable laws and regulations, and,
in particular, will be: (i) made by an investment firm,
bank or financial intermediary permitted to conduct such
activities in Italy in accordance with the Financial Services
Act, Legislative Decree No. 385 of September 1, 1993,
as amended (the Italian Banking Law),
Regulation No. 11522, and any other applicable laws
and regulations; (ii) in compliance with Article 129
of the Italian Banking Law and the implementing guidelines of
the Bank of Italy; and (iii) in compliance with any other
applicable notification requirement or limitation which may be
imposed by CONSOB or the Bank of Italy.
Any investor purchasing the shares of common stock in the
offering is solely responsible for ensuring that any offer or
resale of the shares of common stock it purchased in the
offering occurs in compliance with applicable laws and
regulations.
The prospectus and the information contained therein are
intended only for the use of its recipient and, unless in
circumstances which are exempted from the rules on solicitation
of investments pursuant to Article 100 of the
Financial Service Act and Article 33, first
paragraph, of CONSOB Regulation No. 11971 of
May 14, 1999, as amended, is not to be distributed, for any
reason, to any third party resident or located in Italy. No
person resident or located in Italy other than the original
recipients of this document may rely on it or its content.
Italy has only partially implemented the Prospectus Directive,
the provisions above relating to the Prospectus Directive shall
apply with respect to Italy only to the extent that the relevant
provisions of the Prospectus Directive have already been
implemented in Italy.
Insofar as the requirements above are based on laws which are
superseded at any time pursuant to the implementation of the
Prospectus Directive, such requirements shall be replaced by the
applicable requirements under the Prospectus Directive.
A prospectus in electronic format is being made available on
Internet websites maintained by one or more of the lead
underwriters of this offering and may be made available on
websites maintained by other underwriters. Other than the
prospectus in electronic format, the information on any
underwriters website and any information contained in any
other website maintained by an underwriter is not part of the
prospectus or the registration statement of which the prospectus
forms a part.
Prior to this offering, there has been no public market for our
common stock. Consequently, the initial public offering price of
our common stock will be determined by negotiation between us
and the representatives of the underwriters. Among the primary
factors that will be considered in determining the public
offering price are the following:
|
|
|
|
|
prevailing market conditions;
|
|
|
|
our results of operations in recent periods;
|
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|
|
the present stage of our development;
|
|
|
|
the market capitalizations and stages of development of other
companies that we and the representatives of the underwriters
believe to be comparable to our business; and
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|
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estimates of our business potential.
|
161
Some of the underwriters or their affiliates may provide
investment banking services to us in the future. They will
receive customary fees and commissions for these services. For
example, certain affiliates of the underwriters to this offering
are lenders under our revolving credit facility. Bank of
America, N.A., an affiliate of Banc of America Securities LLC,
and JPMorgan Chase Bank, N.A., an affiliate of J.P. Morgan
Securities Inc., are lenders under our revolving credit
facility. See Managements Discussion and Analysis of
Financial Condition and Results of OperationsLiquidity and
Capital ResourcesFinancing Facilities; Revolving Credit
Facility and Use of Proceeds. We have
historically relied on agreements with Bank of America, N.A. to
provide us with the cash that we use our domestic ATMs where
cash is not provided by the merchant. See
Business Primary Vendor
Relationships Cash Management.
Affiliates of Banc of America Securities LLC and
J.P. Morgan Securities Inc. are lenders under our revolving
credit facility and will receive a portion of the proceeds of
this offering which will be used to repay in full the amount
outstanding under the revolving credit facility. These
underwriters, through their affiliates, may be deemed to receive
financial benefits as a result of the consummation of this
offering beyond the benefits customarily received by
underwriters in similar offerings. Because more than 10% of the
proceeds of this offering, not including underwriting
compensation, may be received by affiliates of the underwriters
in this offering, this offering is being conducted in compliance
with National Association of Securities Dealers
(NASD) Conduct Rule 2710(h). Pursuant to that
rule, the price of the common shares can be no higher than that
recommended by a qualified independent underwriter,
as defined by the NASD Conduct Rule 2720(b)(15), which has
participated in the preparation of this prospectus and performed
its usual standard of due diligence with respect to this
prospectus. Deutsche Bank Securities Inc. has agreed to act as
qualified independent underwriter for the offering and to
exercise the usual standard of due diligence regarding this
prospectus and participate in the preparation of this
prospectus. We have agreed to indemnify Deutsche Bank Securities
Inc. against liabilities incurred in connection with acting as a
qualified independent underwriter, including liabilities under
the Securities Act.
162
The validity of our shares of common stock offered by 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 Shearman &
Sterling LLP, New York, New York.
The consolidated financial statements of (i) Cardtronics,
Inc. as of December 31, 2006 and 2005, and for each of the
years in the three-year period ended December 31, 2006, and
(ii) ATM Company (as defined in the notes to those financial
statements) as of December 31, 2002 and 2003 and
June 30, 2004, and for each of the years in the two-year
period ended December 31, 2003 and the six-month period
ended June 30, 2004, have been included herein in reliance
upon the report of KPMG LLP, independent registered public
accounting firm, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The audit report covering the December 31, 2006 financial
statements for Cardtronics, Inc. refers to the adoption of
Statement of Financial Accounting Standards No. 123(R),
Share-based Payments, on January 1, 2006. The audit
report covering the financial statements of ATM Company refers
to the adoption of Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement
Obligations, on January 1, 2003.
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, included in this prospectus, have been audited by
PricewaterhouseCoopers LLP, independent accountants. Such
financial statements have been so included 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.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act relating to the common stock we are
offering. This prospectus, which constitutes a part of the
registration statement, does not contain all the information
that is included in the registration statement and its exhibits
and schedules. Certain portions of the registration statement
have been omitted as allowed by the rules and regulations of the
SEC. Statements in this prospectus which summarize documents are
not necessarily complete, and in each case you should refer to
the copy of the document filed as an exhibit to the registration
statement. You may read and copy the registration statement,
including exhibits and schedules filed with it, and reports or
other information we may file with the SEC at the public
reference facilities of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. You may call the SEC at
1-800-SEC-0330
for further information regarding the operation of the public
reference rooms. In addition, the registration statement and
other public filings can be obtained from the SECs
internet site at
http://www.sec.gov.
We have previously filed a registration statement relating to
our senior subordinated notes with, and have had such
registration statement declared effective by, the SEC, and
accordingly we are currently subject to a limited number of the
information requirements of the Exchange Act, including the
filing of annual, quarterly, and current reports. Upon
completion of this offering, we will become subject to
additional information and periodic reporting requirements of
the Exchange Act. These reports and other information may be
inspected and copied at the public reference facilities
maintained by the SEC or obtained from the SECs website as
provided above.
163
INDEX
TO FINANCIAL STATEMENTS
|
|
|
|
|
CARDTRONICS, INC. AND SUBSIDIARIES
|
|
|
|
|
Unaudited Interim Condensed Consolidated Financial Statements:
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
Annual Financial Statements:
|
|
|
|
|
|
|
|
F-39
|
|
|
|
|
F-40
|
|
|
|
|
F-41
|
|
|
|
|
F-42
|
|
|
|
|
F-43
|
|
|
|
|
F-44
|
|
|
|
|
F-45
|
|
7-ELEVEN FINANCIAL SERVICES BUSINESS
|
|
|
|
|
Unaudited Interim Financial Statements:
|
|
|
|
|
|
|
|
F-93
|
|
|
|
|
F-94
|
|
|
|
|
F-95
|
|
|
|
|
F-96
|
|
Annual Financial Statements:
|
|
|
|
|
|
|
|
F-100
|
|
|
|
|
F-101
|
|
|
|
|
F-102
|
|
|
|
|
F-103
|
|
|
|
|
F-104
|
|
|
|
|
F-105
|
|
ATM COMPANY
|
|
|
|
|
Annual and Interim Financial Statements
|
|
|
|
|
|
|
|
F-115
|
|
|
|
|
F-116
|
|
|
|
|
F-117
|
|
|
|
|
F-118
|
|
|
|
|
F-119
|
|
|
|
|
F-120
|
|
F-1
CARDTRONICS,
INC.
Unaudited Interim
Condensed Consolidated Financial Statements
September 30,
2007
F-2
CARDTRONICS,
INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands,
except share amounts)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,118
|
|
|
$
|
2,718
|
|
Accounts and notes receivable, net of allowance of $400 and $409
as of September 30, 2007 and December 31, 2006,
respectively
|
|
|
24,076
|
|
|
|
14,891
|
|
Inventory
|
|
|
5,294
|
|
|
|
4,444
|
|
Prepaid expenses, deferred costs, and other current assets
|
|
|
11,955
|
|
|
|
16,334
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
47,443
|
|
|
|
38,387
|
|
Property and equipment, net
|
|
|
138,324
|
|
|
|
86,668
|
|
Intangible assets, net
|
|
|
134,690
|
|
|
|
67,763
|
|
Goodwill
|
|
|
236,488
|
|
|
|
169,563
|
|
Prepaid expenses and other assets
|
|
|
5,256
|
|
|
|
5,375
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
562,201
|
|
|
$
|
367,756
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
529
|
|
|
$
|
194
|
|
Current portion of capital lease obligations
|
|
|
1,098
|
|
|
|
|
|
Current portion of other long-term liabilities
|
|
|
12,552
|
|
|
|
2,501
|
|
Accounts payable and accrued liabilities
|
|
|
79,018
|
|
|
|
51,256
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
93,197
|
|
|
|
53,951
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt, net of related discounts
|
|
|
406,100
|
|
|
|
252,701
|
|
Capital lease obligations
|
|
|
1,183
|
|
|
|
|
|
Deferred tax liability, net
|
|
|
9,943
|
|
|
|
7,625
|
|
Asset retirement obligations
|
|
|
16,392
|
|
|
|
9,989
|
|
Other long-term liabilities and minority interest in subsidiaries
|
|
|
17,921
|
|
|
|
4,064
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
544,736
|
|
|
|
328,330
|
|
Redeemable convertible preferred stock
|
|
|
76,794
|
|
|
|
76,594
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 5,000,000 shares
authorized; 2,394,509 shares issued at September 30,
2007 and December 31, 2006, respectively; 1,764,735 and
1,760,798 outstanding at September 30, 2007 and
December 31, 2006, respectively
|
|
|
|
|
|
|
|
|
Subscriptions receivable (at face value)
|
|
|
(324
|
)
|
|
|
(324
|
)
|
Additional paid-in capital
|
|
|
3,625
|
|
|
|
2,857
|
|
Accumulated other comprehensive income, net
|
|
|
8,577
|
|
|
|
11,658
|
|
Accumulated deficit
|
|
|
(22,986
|
)
|
|
|
(3,092
|
)
|
Treasury stock; 629,774 and 633,711 shares at cost at
September 30, 2007 and December 31, 2006, respectively
|
|
|
(48,221
|
)
|
|
|
(48,267
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(59,329
|
)
|
|
|
(37,168
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
562,201
|
|
|
$
|
367,756
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
F-3
CARDTRONICS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
106,234
|
|
|
$
|
72,887
|
|
|
$
|
251,854
|
|
|
$
|
209,542
|
|
Vcom operating revenues
|
|
|
685
|
|
|
|
|
|
|
|
685
|
|
|
|
|
|
ATM product sales and other revenues
|
|
|
3,668
|
|
|
|
3,478
|
|
|
|
9,805
|
|
|
|
9,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
110,587
|
|
|
|
76,365
|
|
|
|
262,344
|
|
|
|
218,760
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of ATM operating revenues (includes stock-based
compensation of $16 and $15 for the three months ended
September 30, 2007 and 2006, respectively, and $47 and $35
for the nine months ended September 30, 2007 and 2006,
respectively. Excludes depreciation, accretion, and
amortization, shown separately below.)
|
|
|
79,966
|
|
|
|
54,280
|
|
|
|
191,046
|
|
|
|
157,225
|
|
Cost of Vcom operating revenues
|
|
|
2,644
|
|
|
|
|
|
|
|
2,644
|
|
|
|
|
|
Cost of ATM product sales and other revenues
|
|
|
3,111
|
|
|
|
3,105
|
|
|
|
9,196
|
|
|
|
8,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
85,721
|
|
|
|
57,385
|
|
|
|
202,886
|
|
|
|
165,367
|
|
Gross profit
|
|
|
24,866
|
|
|
|
18,980
|
|
|
|
59,458
|
|
|
|
53,393
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses (includes
stock-based compensation of $297 and $240 for the three months
ended September 30, 2007 and 2006, respectively, and $721
and $600 for the nine months ended September 30, 2007 and
2006, respectively)
|
|
|
7,621
|
|
|
|
5,811
|
|
|
|
20,985
|
|
|
|
15,709
|
|
Depreciation and accretion expense
|
|
|
6,961
|
|
|
|
5,214
|
|
|
|
18,541
|
|
|
|
14,072
|
|
Amortization expense
|
|
|
9,204
|
|
|
|
2,263
|
|
|
|
14,062
|
|
|
|
9,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
23,786
|
|
|
|
13,288
|
|
|
|
53,588
|
|
|
|
39,391
|
|
Income from operations
|
|
|
1,080
|
|
|
|
5,692
|
|
|
|
5,870
|
|
|
|
14,002
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
8,545
|
|
|
|
5,871
|
|
|
|
20,437
|
|
|
|
17,193
|
|
Amortization and write-off of financing costs and bond discounts
|
|
|
439
|
|
|
|
362
|
|
|
|
1,155
|
|
|
|
1,576
|
|
Minority interest in subsidiary
|
|
|
(174
|
)
|
|
|
(71
|
)
|
|
|
(286
|
)
|
|
|
(128
|
)
|
Other
|
|
|
678
|
|
|
|
(83
|
)
|
|
|
1,037
|
|
|
|
(740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
9,488
|
|
|
|
6,079
|
|
|
|
22,343
|
|
|
|
17,901
|
|
Loss before income taxes
|
|
|
(8,408
|
)
|
|
|
(387
|
)
|
|
|
(16,473
|
)
|
|
|
(3,899
|
)
|
Income tax provision (benefit)
|
|
|
2,275
|
|
|
|
(60
|
)
|
|
|
3,212
|
|
|
|
(1,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(10,683
|
)
|
|
|
(327
|
)
|
|
|
(19,685
|
)
|
|
|
(2,682
|
)
|
Preferred stock accretion expense
|
|
|
67
|
|
|
|
67
|
|
|
|
200
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(10,750
|
)
|
|
$
|
(394
|
)
|
|
$
|
(19,885
|
)
|
|
$
|
(2,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(6.09
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(11.28
|
)
|
|
$
|
(1.64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(6.09
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(11.28
|
)
|
|
$
|
(1.64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,764,734
|
|
|
|
1,755,341
|
|
|
|
1,762,200
|
|
|
|
1,752,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
1,764,734
|
|
|
|
1,755,341
|
|
|
|
1,762,200
|
|
|
|
1,752,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
F-4
CARDTRONICS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(19,685
|
)
|
|
$
|
(2,682
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation, amortization, and accretion expense
|
|
|
32,603
|
|
|
|
23,682
|
|
Amortization and write-off of financing costs and bond discounts
|
|
|
1,155
|
|
|
|
1,576
|
|
Stock-based compensation expense
|
|
|
768
|
|
|
|
635
|
|
Deferred income taxes
|
|
|
3,065
|
|
|
|
(1,316
|
)
|
Minority interest
|
|
|
(286
|
)
|
|
|
(128
|
)
|
Loss on sale or disposal of assets
|
|
|
1,672
|
|
|
|
731
|
|
Gain on sale of Winn-Dixie equity securities
|
|
|
(569
|
)
|
|
|
|
|
Other reserves and non-cash items
|
|
|
829
|
|
|
|
|
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
Increase in accounts and notes receivable, net
|
|
|
(1,607
|
)
|
|
|
(938
|
)
|
Decrease (increase) in prepaid, deferred costs, and other
current assets
|
|
|
2,855
|
|
|
|
(3,598
|
)
|
Decrease (increase) in inventory
|
|
|
3,231
|
|
|
|
(1,184
|
)
|
Increase in other assets
|
|
|
(5,193
|
)
|
|
|
(907
|
)
|
Increase in accounts payable and accrued liabilities
|
|
|
19,031
|
|
|
|
3,972
|
|
Decrease in other liabilities
|
|
|
(2,680
|
)
|
|
|
(2,976
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
35,189
|
|
|
|
16,867
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(43,957
|
)
|
|
|
(24,179
|
)
|
Proceeds from disposals of property and equipment
|
|
|
3
|
|
|
|
100
|
|
Payments for exclusive license agreements and site acquisition
costs
|
|
|
(1,381
|
)
|
|
|
(1,842
|
)
|
Additions to equipment to be leased to customers
|
|
|
(412
|
)
|
|
|
|
|
Principal payments received under direct financing leases
|
|
|
22
|
|
|
|
|
|
Acquisition of 7-Eleven Financial Services Business, net of cash
acquired
|
|
|
(138,570
|
)
|
|
|
|
|
Other acquisitions, net of cash acquired
|
|
|
|
|
|
|
(12
|
)
|
Proceeds from sale of Winn-Dixie equity securities
|
|
|
3,950
|
|
|
|
|
|
Proceeds received out of escrow related to BASC acquisition
|
|
|
876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(179,469
|
)
|
|
|
(25,933
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
170,258
|
|
|
|
30,300
|
|
Repayments of long-term debt
|
|
|
(22,363
|
)
|
|
|
(22,000
|
)
|
Proceeds from borrowings under bank overdraft facility, net
|
|
|
54
|
|
|
|
|
|
Issuance of capital stock
|
|
|
46
|
|
|
|
|
|
Minority interest shareholder capital contributions
|
|
|
174
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(50
|
)
|
Deferred equity offering costs
|
|
|
(150
|
)
|
|
|
|
|
Debt issuance and modification costs
|
|
|
(326
|
)
|
|
|
(477
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
147,693
|
|
|
|
7,773
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(13
|
)
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,400
|
|
|
|
(1,224
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
2,718
|
|
|
|
1,699
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
6,118
|
|
|
$
|
475
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
22,872
|
|
|
$
|
21,554
|
|
Cash paid for income taxes
|
|
$
|
27
|
|
|
$
|
49
|
|
Fixed assets financed by direct debt
|
|
$
|
3,125
|
|
|
$
|
|
|
See accompanying notes to condensed consolidated financial
statements.
F-5
CARDTRONICS,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
1.
|
General and Basis
of Presentation
|
General
Cardtronics, Inc., along with its wholly-owned subsidiaries
(collectively, the Company or
Cardtronics), owns and/or operates the worlds
largest network of ATMs, including over 28,600 automated teller
machines (ATM) in all 50 states and approximately
1,900 ATMs located throughout the United Kingdom. Additionally,
the Company owns a majority interest in an entity that operates
approximately 1,000 ATMs located throughout Mexico. The Company
provides ATM management and equipment-related services
(typically under multi-year contracts) to large,
nationally-known retail merchants as well as smaller retailers
and operators of facilities such as shopping malls and airports.
Additionally, the Company operates the Allpoint network, the
largest surcharge-free ATM network within the United States
(based on number of participating ATMs), under which it sells
surcharge-free access to its ATMs to financial institutions that
lack a significant ATM network. The Company also works with
financial institutions to brand the Companys ATMs in order
to provide the financial institutions banking customers
with convenient, surcharge-free ATM access and increased brand
awareness for the financial institutions.
In July 2007, the Company purchased substantially all of the
assets of the financial services business of
7-Eleven®,
Inc. (7-Eleven) for approximately
$138.0 million in cash
(the 7-Eleven ATM
Transaction), including an adjustment for working capital
and other related closing costs. See Note 2 for additional
information on this acquisition.
Basis of
Presentation
The unaudited interim condensed consolidated financial
statements include the accounts of Cardtronics, Inc. and its
wholly and majority-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
The unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and
regulations of the United States Securities and Exchange
Commission (SEC) applicable to interim financial
information. Because this is an interim period filing presented
using a condensed format, it does not include all of the
disclosures required by accounting principles generally accepted
in the United States of America. You should read these unaudited
interim condensed consolidated financial statements along with
the Companys audited financial statements for the year
ended December 31, 2006, included elsewhere herein, which
includes a summary of the Companys significant accounting
policies and other disclosures.
The financial statements as of September 30, 2007 and for
the three and nine month periods ended September 30, 2007
and 2006 are unaudited. The balance sheet as of
December 31, 2006 was derived from the audited balance
sheet included elsewhere herein. In managements opinion,
all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the
Companys interim period results have been made. The
results of operations for the three and nine month periods ended
September 30, 2007 and 2006 are not necessarily indicative
of results that may be expected for any other interim period or
for the full fiscal year. Additionally, the financial statements
for prior periods include reclassifications that were made to
conform to the current period presentation. Those
reclassifications did not impact the Companys reported net
loss or stockholders deficit.
F-6
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could
differ from those estimates, and such differences could be
material to the financial statements.
Cost of ATM
Operating Revenues and Gross Profit Presentation
The Company presents Cost of ATM operating revenues
and Gross profit within its condensed consolidated
financial statements exclusive of depreciation, accretion, and
amortization. A summary of the amounts excluded from cost of ATM
operating revenues and gross profit during the three and nine
months ended September 30, 2007 and 2006 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Depreciation and accretion related to ATMs and ATM-related assets
|
|
$
|
6,479
|
|
|
$
|
4,855
|
|
|
$
|
17,257
|
|
|
$
|
13,033
|
|
Amortization
|
|
|
9,204
|
|
|
|
2,263
|
|
|
|
14,062
|
|
|
|
9,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation, accretion, and amortization excluded from
cost of ATM operating revenues and gross profit
|
|
$
|
15,683
|
|
|
$
|
7,118
|
|
|
$
|
31,319
|
|
|
$
|
22,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The depreciation and accretion amounts shown above and as
presented in the Companys condensed consolidated
statements of operations includes depreciation and accretion
related to assets under capital leases.
Acquisition of
7-Eleven
Financial Services Business
On July 20, 2007, the Company acquired substantially all of
the assets of the financial services business of 7-Eleven
(7-Eleven
Financial Services Business) for approximately
$138.0 million in cash. Such amount included a
$2.0 million payment for estimated acquired working capital
and approximately $1.0 million in other related closing
costs. Subsequent to September 30, 2007, the working
capital payment was reduced to $1.3 million based on the
actual working capital amounts outstanding as of the acquisition
date, thus reducing the Companys overall cost of the
acquisition to $137.3 million. The 7-Eleven ATM Transaction
included approximately 5,500 ATMs located in 7-Eleven
stores throughout the United States, of which approximately
2,000 are advanced-functionality financial self-service kiosks
branded as
Vcomtm
terminals that are capable of providing more sophisticated
financial services, such as check-cashing, deposit taking using
electronic imaging, money transfer, bill payment services, and
other kiosk-based financial services (collectively, the
Vcomtm
Services). The Company funded the acquisition through the
issuance of $100.0 million of 9.25% senior subordinated
notes due 2013 Series B and additional
borrowings under its revolving credit facility, which was
amended in connection with the acquisition. See Note 8 for
additional details on these financings.
F-7
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company has accounted for the 7-Eleven ATM Transaction as a
business combination pursuant to Statement of Financial
Accounting Standards (SFAS) No. 141,
Business Combinations. Accordingly, the Company has
allocated the total purchase consideration to the assets
acquired and liabilities assumed based on their respective fair
values as of the acquisition date. The following table
summarizes the preliminary estimated fair values of the assets
acquired and liabilities assumed as of the acquisition date (in
thousands):
|
|
|
|
|
Cash
|
|
$
|
1,427
|
|
Trade accounts receivable, net
|
|
|
3,388
|
|
Surcharge and interchange receivable
|
|
|
3,769
|
|
Inventory
|
|
|
1,953
|
|
Other current assets
|
|
|
3,012
|
|
Property and equipment
|
|
|
18,315
|
|
Software
|
|
|
4,113
|
|
Intangible assets subject to amortization
|
|
|
78,000
|
|
Goodwill
|
|
|
62,367
|
|
|
|
|
|
|
Total assets acquired
|
|
|
176,344
|
|
|
|
|
|
|
Current portion of capital lease obligations
|
|
|
(1,119
|
)
|
Accounts payable
|
|
|
(688
|
)
|
Accrued liabilities and deferred income
|
|
|
(9,583
|
)
|
Current portion of other long-term liabilities
|
|
|
(7,777
|
)
|
Non-current portion of capital lease obligations
|
|
|
(1,388
|
)
|
Other long-term liabilities
|
|
|
(17,809
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(38,364
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
137,980
|
|
|
|
|
|
|
The purchase price allocation presented above, which reflects
the working capital true-up adjustment, resulted in an initial
goodwill balance of approximately $62.4 million, which is
deductible for tax purposes. Additionally, the purchase price
allocation resulted in approximately $78.0 million in
identifiable intangible assets subject to amortization, which
consisted of $64.3 million associated with the ten-year ATM
operating agreement that was entered into with 7-Eleven in
conjunction with the acquisition and $13.7 million related
to additional contracts acquired in the transaction. The
$78.0 million assigned to the acquired intangible assets
was determined by utilizing a discounted cash flow approach. The
$64.3 million is being amortized on a straight-line basis
over the term of the underlying ATM operating agreement, while
the $13.7 million is being amortized over the
weighted-average remaining life of the underlying contracts of
8.4 years. Additionally, the Company recorded
$19.5 million of other deferred liabilities
($7.8 million in current and $11.7 million in
long-term) related to certain unfavorable equipment operating
leases and an operating contract assumed as part of the 7-Eleven
ATM Transaction. These liabilities are being amortized over the
remaining terms of the underlying contracts and serve to reduce
the corresponding ATM operating expense amounts to fair value.
Pro Forma
Results of Operations
The following table presents the unaudited pro forma combined
results of operations of the Company and the acquired 7-Eleven
Financial Services Business for the nine month periods
F-8
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
ended September 30, 2007 and 2006, after giving effect to
certain pro forma adjustments, including the effects of the
issuance of the Companys $100.0 million of 9.25%
senior subordinated notes due 2013 Series B and
additional borrowings under its revolving credit facility, as
amended (Note 7). The unaudited pro forma financial results
assume that both the 7-Eleven ATM Transaction and related
financing transactions occurred on January 1, 2006. This
pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the actual results
that would have occurred had those transactions been consummated
on such date. Furthermore, such pro forma results are not
necessarily indicative of the future results to be expected for
the consolidated operations.
|
|
|
|
|
|
|
|
|
|
|
Nine Months ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
349,854
|
|
|
$
|
343,261
|
|
Income from operations
|
|
|
15,315
|
|
|
|
34,178
|
|
Net (loss) income
|
|
|
(17,820
|
)
|
|
|
3,233
|
|
Acquisition of
CCS Mexico
In February 2006, the Company acquired a 51.0% ownership stake
in CCS Mexico, an independent ATM operator located in Mexico,
for approximately $1.0 million in cash consideration and
the assumption of approximately $0.4 million in additional
liabilities. Additionally, the Company incurred approximately
$0.3 million in transaction costs associated with this
acquisition. CCS Mexico, which was renamed Cardtronics Mexico
upon the completion of the Companys investment, currently
operates approximately 1,000 surcharging ATMs in selected retail
locations throughout Mexico, and the Company anticipates placing
additional surcharging ATMs in other retail establishments
throughout Mexico as those opportunities arise.
The Company has allocated the total purchase consideration to
the assets acquired and liabilities assumed based on their
respective fair values as of the acquisition date. Such
allocation resulted in goodwill of approximately
$0.7 million. Such goodwill, which is not deductible for
tax purposes, has been assigned to a separate reporting unit
representing the acquired CCS Mexico operations. Additionally,
such allocation resulted in approximately $0.4 million in
identifiable intangible assets, including $0.3 million for
certain acquired customer contracts and $0.1 million
related to non-compete agreements entered into with the minority
interest shareholders of Cardtronics Mexico.
Because the Company owns a majority interest in and absorbs a
majority of the entitys losses or returns, Cardtronics
Mexico is reflected as a consolidated subsidiary in the
accompanying condensed consolidated financial statements, with
the remaining ownership interest not held by the Company being
reflected as a minority interest. See Note 10 for
additional information regarding this minority interest.
|
|
3.
|
Stock-based
Compensation
|
In the first quarter of 2006, the Company adopted
SFAS No. 123 (revised 2004), Share-Based
Payment. As a result of this adoption, the Company now
records the grant date fair value of stock-based compensation
arrangements, net of estimated forfeitures, as compensation
expense on a straight-line basis over the underlying service
periods of the related awards. The following table reflects the
total stock-based compensation expense amounts included in
F-9
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
the accompanying condensed consolidated statements of operations
for the each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Cost of ATM operating revenues
|
|
$
|
16
|
|
|
$
|
15
|
|
|
$
|
47
|
|
|
$
|
35
|
|
Selling, general, and administrative expenses
|
|
|
297
|
|
|
|
240
|
|
|
|
721
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
313
|
|
|
$
|
255
|
|
|
$
|
768
|
|
|
$
|
635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the status of the Companys outstanding stock
options as of September 30, 2007, and changes during
the nine months ended September 30, 2007, are presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
|
of Shares
|
|
|
Exercise Price
|
|
|
Balance as of January 1, 2007
|
|
|
509,461
|
|
|
$
|
52.76
|
|
Granted
|
|
|
76,000
|
|
|
$
|
90.05
|
|
Exercised
|
|
|
(3,937
|
)
|
|
$
|
11.73
|
|
Forfeited
|
|
|
(25,000
|
)
|
|
$
|
83.84
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2007
|
|
|
556,524
|
|
|
$
|
56.74
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable as of September 30, 2007
|
|
|
333,399
|
|
|
$
|
38.58
|
|
The Company reports net (loss) income per share in accordance
with SFAS No. 128, Earnings per Share. In
accordance with SFAS No. 128, the Company excludes
potentially dilutive securities in its calculation of diluted
earnings per share (as well as their related income statement
impacts) when their impact on net (loss) income available to
common stockholders is anti-dilutive. Additionally, for the
three month period ended September 30, 2007 and the nine
month periods ended September 30, 2007 and 2006, the
Company incurred net losses and, accordingly, excluded all
potentially dilutive securities from the calculation of diluted
earnings per share as their impact on the net loss available to
common stockholders was anti-dilutive. Such anti-dilutive
securities included outstanding stock options and the
Companys Series B convertible preferred stock.
The following table reconciles the components of the basic and
diluted earnings per share for the three and nine month periods
ended September 30, 2007 and 2006 (in thousands, except
share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net loss
|
|
$
|
(10,683
|
)
|
|
$
|
(327
|
)
|
|
$
|
(19,685
|
)
|
|
$
|
(2,682
|
)
|
Less: Preferred stock accretion
|
|
|
67
|
|
|
|
67
|
|
|
|
200
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(10,750
|
)
|
|
$
|
(394
|
)
|
|
$
|
(19,885
|
)
|
|
$
|
(2,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-10
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Numerator for basic and diluted net loss per share
|
|
$
|
(10,750
|
)
|
|
$
|
(394
|
)
|
|
$
|
(19,885
|
)
|
|
$
|
(2,881
|
)
|
Denominator for net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
1,764,734
|
|
|
|
1,755,341
|
|
|
|
1,762,200
|
|
|
|
1,752,442
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B redeemable convertible preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
1,764,734
|
|
|
|
1,755,341
|
|
|
|
1,762,200
|
|
|
|
1,752,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(6.09
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(11.28
|
)
|
|
$
|
(1.64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(6.09
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(11.28
|
)
|
|
$
|
(1.64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to their anti-dilutive effect, the following potentially
dilutive securities have been excluded from the computation of
diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Stock options
|
|
|
246,728
|
|
|
|
188,593
|
|
|
|
216,438
|
|
|
|
191,351
|
|
Restricted shares
|
|
|
|
|
|
|
|
|
|
|
2,140
|
|
|
|
9,217
|
|
Series B redeemable convertible preferred stock
|
|
|
929,789
|
|
|
|
929,789
|
|
|
|
929,789
|
|
|
|
929,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total potentially dilutive securities
|
|
|
1,176,517
|
|
|
|
1,118,382
|
|
|
|
1,148,367
|
|
|
|
1,130,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Share
and Per Share Data
In September 2007, the Company filed a registration statement on
Form S-1
with the SEC relating to an initial public offering of shares of
its common stock. The Company filed a post effective amendment
to that registration statement in December 2007, in which
it disclosed its intent to offer a total of 12.0 million
shares of its common stock at an estimated price range of $10 to
$11 per share (after taking into account an anticipated 8.1758:1
stock split that will occur immediately prior to the offering).
The following pro forma share and per share information gives
effect to this stock split and the related conversion mechanics
applicable to the Series B Convertible Preferred shares
held by TA Associates, assuming the offering occurs at
$10.50 per share.
F-11
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Pro forma weighted average common shares outstanding
basic
|
|
|
14,428,156
|
|
|
|
14,351,365
|
|
|
|
14,407,442
|
|
|
|
14,327,659
|
|
Pro forma effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average common shares outstanding
diluted
|
|
|
14,428,156
|
|
|
|
14,351,365
|
|
|
|
14,407,442
|
|
|
|
14,327,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.75
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(1.38
|
)
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.75
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(1.38
|
)
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Comprehensive
Income (Loss)
|
SFAS No. 130, Reporting Comprehensive Income,
establishes standards for reporting comprehensive income (loss)
and its components in the financial statements. Accumulated
other comprehensive income is displayed as a separate component
of stockholders deficit in the accompanying condensed
consolidated balance sheets and consists of unrealized gains and
losses, net of related income taxes, related to changes in the
fair values of the Companys interest rate swap derivative
transactions and the cumulative amount of foreign currency
translation adjustments associated with the Companys
foreign operations. In addition, as of December 31, 2006,
accumulated other comprehensive income included unrealized gains
on
available-for-sale
marketable securities, net of income taxes. These securities
were sold in January 2007.
F-12
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table presents the calculation of comprehensive
(loss) income, which includes the Companys (i) net
loss; (ii) foreign currency translation adjustments;
(iii) changes in the unrealized gains and losses associated
with the Companys interest rate hedging activities, net of
income taxes; and (iv) reclassifications of unrealized
gains on the Companys
available-for-sale
securities, net of income taxes, for each of the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Net loss
|
|
$
|
(10,683
|
)
|
|
$
|
(327
|
)
|
|
$
|
(19,685
|
)
|
|
$
|
(2,682
|
)
|
Foreign currency translation adjustments
|
|
|
1,878
|
|
|
|
1,706
|
|
|
|
4,378
|
|
|
|
7,015
|
|
Changes in unrealized gains on interest rate hedges, net of taxes
|
|
|
(7,155
|
)
|
|
|
(3,919
|
)
|
|
|
(6,961
|
)
|
|
|
(439
|
)
|
Reclassifications of unrealized gains on
available-for-sale
securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
(498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$
|
(15,960
|
)
|
|
$
|
(2,540
|
)
|
|
$
|
(22,766
|
)
|
|
$
|
3,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the components of accumulated
other comprehensive income, net of applicable taxes:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Foreign currency translation adjustments
|
|
$
|
11,089
|
|
|
$
|
6,711
|
|
Unrealized (losses) gains on interest rate hedges, net of taxes
as of December 31, 2006
|
|
|
(2,512
|
)
|
|
|
4,449
|
|
Unrealized gains on
available-for-sale
securities, net of taxes
|
|
|
|
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
8,577
|
|
|
$
|
11,658
|
|
|
|
|
|
|
|
|
|
|
The Company currently believes that the unremitted earnings of
its foreign subsidiaries will be reinvested in the foreign
countries in which those subsidiaries operate for an indefinite
period of time. Accordingly, no deferred taxes have been
provided for on the differences between the Companys book
basis and underlying tax basis in those subsidiaries or on the
foreign currency translation adjustment amounts reflected in the
tables above. The unrealized gains on interest rate hedges as of
December 31, 2006 has been included in accumulated other
comprehensive income net of income taxes of $2.7 million.
However, as a result of the Companys overall net loss
position for tax purposes, the Company has not recorded deferred
taxes on the loss amount related to its interest rate hedges as
of September 30, 2007, as management does not believe that
the Company will be able to realize the benefits associated with
such deferred tax positions.
F-13
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Intangible
Assets with Indefinite Lives
The following table depicts the net carrying amount of the
Companys intangible assets with indefinite lives as of
September 30, 2007 and December 31, 2006, as well as
the changes in the net carrying amounts for the nine month
period ended September 30, 2007, by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Trade Name
|
|
|
|
U.S.
|
|
|
U.K.
|
|
|
Mexico
|
|
|
U.S.
|
|
|
U.K.
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
$
|
86,702
|
|
|
$
|
82,172
|
|
|
$
|
689
|
|
|
$
|
200
|
|
|
$
|
3,923
|
|
|
$
|
173,686
|
|
Acquisition of 7-Eleven Financial Services Business
|
|
|
62,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,367
|
|
Purchase price adjustment
|
|
|
1,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,558
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
2,999
|
|
|
|
1
|
|
|
|
|
|
|
|
147
|
|
|
|
3,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2007
|
|
$
|
150,627
|
|
|
$
|
85,171
|
|
|
$
|
690
|
|
|
$
|
200
|
|
|
$
|
4,070
|
|
|
$
|
240,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets with Definite Lives
The following is a summary of the Companys intangible
assets that are subject to amortization as of September 30,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Customer contracts and relationships
|
|
$
|
162,426
|
|
|
$
|
(45,010
|
)
|
|
$
|
117,416
|
|
Deferred financing costs
|
|
|
13,864
|
|
|
|
(3,903
|
)
|
|
|
9,961
|
|
Exclusive license agreements
|
|
|
4,568
|
|
|
|
(1,583
|
)
|
|
|
2,985
|
|
Non-compete agreements
|
|
|
100
|
|
|
|
(42
|
)
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
180,958
|
|
|
$
|
(50,538
|
)
|
|
$
|
130,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys intangible assets with definite lives are
being amortized over the assets estimated useful lives
utilizing the straight-line method. Estimated useful lives range
from three to twelve years for customer contracts and
relationships and four to eight years for exclusive license
agreements. The Company has also assumed an estimated life of
four years for its non-compete agreements. Deferred financing
costs are amortized through interest expense over the
contractual term of the underlying borrowings utilizing the
effective interest method. The Company periodically reviews the
estimated useful lives of its identifiable intangible assets,
taking into consideration any events or circumstances that might
result in a reduction in fair value or a revision of those
estimated useful lives.
Amortization of customer contracts and relationships, exclusive
license agreements, and non-compete agreements totaled
$9.2 million and $2.3 million for the three month
periods ended September 30, 2007 and 2006, respectively,
and $14.1 million and $9.6 million for the nine month
periods ended September 30, 2007 and 2006, respectively.
Included in the 2007
quarter-to-date
and
year-to-date
amounts is approximately $5.2 million and
$5.3 million, respectively, of additional amortization
expense related to impairments associated with certain
contract-based intangible assets. Of these amounts,
approximately $5.1 million relates to the Companys
merchant contract with Target, which was acquired in 2004. The
Company has been
F-14
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
in discussions with this particular merchant customer regarding
additional services that could be offered under the existing
contract to increase the number of transactions conducted on,
and cash flows generated by, the underlying ATMs. However, the
Company was unable to make any progress in this regard during
the three month period ended September 30, 2007, and, based
on discussions that have been held with this merchant, has
concluded that the likelihood of being able to provide such
additional services has decreased considerably. Furthermore,
average monthly transaction volumes associated with this
particular contract have continued to decrease in 2007 when
compared to the same period last year. Accordingly, the Company
concluded that the above impairment charge was warranted as of
September 30, 2007. The impairment charge recorded served
to write-off the remaining unamortized intangible asset
associated with this merchant. Management plans to continue to
work with this merchant customer to offer the additional
services, which management believes could significantly increase
the future cash flows earned under this contract. Absent its
ability to do this, management will attempt to restructure the
terms of the existing contract in an effort to improve the
underlying cash flows associated with the contract.
Included in the
2006 year-to-date
figure is approximately $2.8 million of additional
impairment expense related to the acquired BAS Communications,
Inc. (BASC) ATM portfolio. This impairment, taken in
the in first quarter of 2006, was attributable to the
anticipated reduction in future cash flows resulting from a
higher than anticipated attrition rate associated with such
portfolio. In January 2007, the Company received approximately
$0.8 million in net proceeds from an escrow account
established upon the initial closing of this acquisition. Such
proceeds were meant to compensate the Company for the attrition
issues experienced in the BASC portfolio subsequent to the
acquisition date. Such amount was utilized to reduce the
remaining carrying value of the intangible asset amount
associated with this portfolio.
Amortization of deferred financing costs and bond discount
totaled approximately $0.4 million for the three month
periods ended September 30, 2007 and 2006, and
$1.2 million and $1.6 million for the nine month
periods ended September 30, 2007 and 2006, respectively.
Included in the
2006 year-to-date
figure is approximately $0.5 million in deferred financing
costs written off in February 2006 in connection with certain
modifications made to the Companys existing revolving
credit facilities.
Estimated amortization expense for the Companys intangible
assets with definite lives for the remaining three months of
2007 and each of the next five years and thereafter is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
Exclusive
|
|
|
|
|
|
|
|
|
|
Customer Contracts
|
|
|
Financing
|
|
|
License
|
|
|
Non-compete
|
|
|
|
|
|
|
and Relationships
|
|
|
Costs
|
|
|
Agreements
|
|
|
Agreements
|
|
|
Total
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
4,171
|
|
|
$
|
357
|
|
|
$
|
173
|
|
|
$
|
6
|
|
|
$
|
4,707
|
|
2008
|
|
|
16,698
|
|
|
|
1,516
|
|
|
|
633
|
|
|
|
25
|
|
|
|
18,872
|
|
2009
|
|
|
16,384
|
|
|
|
1,628
|
|
|
|
628
|
|
|
|
25
|
|
|
|
18,665
|
|
2010
|
|
|
14,941
|
|
|
|
1,752
|
|
|
|
531
|
|
|
|
2
|
|
|
|
17,226
|
|
2011
|
|
|
13,120
|
|
|
|
1,891
|
|
|
|
417
|
|
|
|
|
|
|
|
15,428
|
|
2012
|
|
|
11,909
|
|
|
|
1,751
|
|
|
|
349
|
|
|
|
|
|
|
|
14,009
|
|
Thereafter
|
|
|
40,193
|
|
|
|
1,066
|
|
|
|
254
|
|
|
|
|
|
|
|
41,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
117,416
|
|
|
$
|
9,961
|
|
|
$
|
2,985
|
|
|
$
|
58
|
|
|
$
|
130,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
7.
|
Accounts Payable
and Accrued Liabilities
|
The Companys accounts payable and accrued liabilities
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Accounts payable
|
|
$
|
28,478
|
|
|
$
|
16,915
|
|
Accrued merchant fees
|
|
|
11,741
|
|
|
|
7,915
|
|
Accrued interest
|
|
|
5,759
|
|
|
|
7,954
|
|
Accrued cash management fees
|
|
|
6,632
|
|
|
|
2,740
|
|
Accrued armored fees
|
|
|
5,097
|
|
|
|
3,242
|
|
Accrued maintenance fees
|
|
|
3,000
|
|
|
|
2,090
|
|
Accrued compensation
|
|
|
2,806
|
|
|
|
3,499
|
|
Accrued purchases
|
|
|
2,581
|
|
|
|
343
|
|
Accrued ATM telecommunications fees
|
|
|
1,665
|
|
|
|
650
|
|
Other accrued expenses
|
|
|
11,259
|
|
|
|
5,908
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
79,018
|
|
|
$
|
51,256
|
|
|
|
|
|
|
|
|
|
|
The Companys long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Revolving credit facility
|
|
$
|
105,600
|
|
|
$
|
53,100
|
|
Senior subordinated notes issued in 2005 and due August 2013
(net of unamortized discount of $1.1 million as of
September 30, 2007 and $1.2 million as of
December 31, 2006)
|
|
|
198,886
|
|
|
|
198,783
|
|
Senior subordinated notes issued in 2007 and due August 2013
(net of unamortized discount of $2.9 million as
September 30, 2007)
|
|
|
97,073
|
|
|
|
|
|
Other
|
|
|
5,070
|
|
|
|
1,012
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
406,629
|
|
|
|
252,895
|
|
Less current portion
|
|
|
529
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
Total excluding current portion
|
|
$
|
406,100
|
|
|
$
|
252,701
|
|
|
|
|
|
|
|
|
|
|
Revolving
Credit Facility
In February 2006, the Company amended its then existing
revolving credit facility to remove and modify certain
restrictive covenants contained within the facility and to
reduce the maximum borrowing capacity from $150.0 million
to $125.0 million. As a result of this amendment, the
Company recorded a pre-tax charge of approximately
$0.5 million in the first quarter of 2006 associated with
the write-off of previously deferred financing costs related to
the facility. Additionally, the Company incurred approximately
$0.1 million in fees associated with such amendment.
F-16
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In May 2007, the Company further amended its revolving credit
facility to modify, among other things, (i) the interest
rate spreads on outstanding borrowings and other pricing terms
and (ii) certain restrictive covenants contained within the
facility. Such modification will allow for reduced interest
expense in future periods, assuming a constant level of
borrowings. Furthermore, the amendment increased the amount of
capital expenditures that the Company can incur on a rolling
12-month
basis from $50.0 million to $60.0 million. As a result
of these amendments, the primary restrictive covenants within
the facility include (i) limitations on the amount of
senior debt that the Company can have outstanding at any given
point in time, (ii) the maintenance of a set ratio of
earnings to fixed charges, as computed on a rolling
12-month
basis, (iii) limitations on the amounts of restricted
payments that can be made in any given year, including
dividends, and (iv) limitations on the amount of capital
expenditures that the Company can incur on a rolling
12-month
basis.
In July 2007, in conjunction with the 7-Eleven ATM Transaction,
the Company further amended its revolving credit facility. Such
amendment provided for, among other modifications, (i) an
increase in the maximum borrowing capacity under the revolver
from $125.0 million to $175.0 million in order to
partially finance the 7-Eleven ATM Transaction and to provide
additional financial flexibility; (ii) an increase in the
amount of indebtedness (as defined in the credit
agreement) to allow for the issuance of the $100.0 million
of 9.25% senior subordinated notes due 2013
Series B (described below); (iii) an extension of the
term of the credit agreement from May 2010 to May 2012;
(iv) an increase in the amount of capital expenditures the
Company can incur on a rolling
12-month
basis from $60.0 million to a maximum of
$75.0 million; and (v) an amendment of certain
restrictive covenants contained within the facility. In
conjunction with this amendment, the Company borrowed
approximately $43.0 million under the credit agreement to
fund a portion of the 7-Eleven ATM Transaction. Additionally,
the Company posted $7.5 million in letters of credit under
the facility in favor of the lessors under the ATM equipment
leases that the Company assumed in connection with the
7-Eleven ATM
Transaction. These letters of credit, which the lessors may draw
upon in the event the Company fails to make payments under these
leases, further reduced the Companys borrowing capacity
under the facility. As of September 30, 2007, the
Companys available borrowing capacity under the amended
facility, as determined under the earnings before interest,
taxes, depreciation and accretion, and amortization
(EBITDA) and interest expense covenants contained in
the agreement, totaled approximately $61.9 million.
Borrowings under the revolving credit facility currently bear
interest at the London Interbank Offered Rate
(LIBOR) plus a spread, which was 2.5% as of
September 30, 2007. Additionally, the Company pays a
commitment fee of 0.3% per annum on the unused portion of the
revolving credit facility. Substantially all of the
Companys assets, including the stock of its wholly-owned
domestic subsidiaries and 66.0% of the stock of its foreign
subsidiaries, are pledged to secure borrowings made under the
revolving credit facility. Furthermore, each of the
Companys domestic subsidiaries has guaranteed the
Companys obligations under such facility. There are
currently no restrictions on the ability of the Companys
wholly-owned subsidiaries to declare and pay dividends directly
to the Company. As of September 30, 2007, the Company was
in compliance with all applicable covenants and ratios under the
facility.
Senior
Subordinated Notes
In October 2006, the Company completed the registration of
$200.0 million in senior subordinated notes (the
Notes), which were originally issued in August 2005
pursuant to Rule 144A of the Securities Act of 1933, as
amended. The Notes, which are subordinate to borrowings made
under the revolving credit facility, mature in August 2013 and
carry a 9.25%
F-17
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
coupon with an effective yield of 9.375%. Interest under the
Notes is paid semi-annually in arrears on February 15th and
August 15th of each year. The Notes, which are guaranteed
by the Companys domestic subsidiaries, contain certain
covenants that, among other things, limit the Companys
ability to incur additional indebtedness and make certain types
of restricted payments, including dividends. As of
September 30, 2007, the Company was in compliance with all
applicable covenants required under the Notes.
On July 20, 2007, the Company sold $100.0 million of
9.25% senior subordinated notes due 2013
Series B (the Series B Notes) pursuant to
Rule 144A of the Securities Act of 1933. The form and terms
of the Series B Notes are substantially the same as the
form and terms of the $200.0 million senior subordinated
notes issued in August 2005, except that (i) the notes
issued in August 2005 have been registered with the Securities
and Exchange Commission while the Series B Notes remain
subject to transfer restrictions until the Company completes an
exchange offer, and (ii) the Series B Notes were
issued with Original Issue Discount and have an effective yield
of 9.54%. The Company has agreed to file a registration
statement with the SEC within 240 days of the issuance of
the Series B Notes with respect to an offer to exchange
each of the Series B Notes for a new issue of its debt
securities registered under the Securities Act with terms
identical to those of the Series B Notes (except for the
provisions relating to the transfer restrictions and payment of
additional interest) and to use reasonable best efforts to have
the exchange offer become effective as soon as reasonably
practicable after filing but in any event no later than
360 days after the initial issuance date of the
Series B Notes. If the Company fails to satisfy its
registration obligations, it will be required, under certain
circumstances, to pay additional interest to the holders of the
Series B Notes. The Company used the net proceeds from the
issuance of the Series B Notes to fund a portion of the
7-Eleven ATM Transaction and to pay fees and expenses related to
the acquisition.
Other
Facilities
In addition to the revolving credit facility, the Companys
wholly-owned United Kingdom subsidiary, Bank Machine, has a
£2.0 million unsecured overdraft facility, the term of
which was recently extended to July 2008. Such facility, which
bears interest at 1.75% over the banks base rate
(currently 5.75%), is utilized for general corporate purposes
for the Companys United Kingdom operations. As of
September 30, 2007 and December 31, 2006,
approximately £1.9 million ($3.8 million U.S. and
$3.7 million U.S., respectively) of this overdraft facility
had been utilized to help fund certain working capital
commitments and to post a £275,000 bond. Amounts
outstanding under the overdraft facility (other than those
amounts utilized for posting bonds) have been reflected in
accounts payable in the accompanying condensed consolidated
balance sheets, as such amounts are automatically repaid once
cash deposits are made to the underlying bank accounts.
As of September 30, 2007, Cardtronics Mexico had entered
into four separate five-year equipment financing agreements.
Such agreements, which are denominated in Mexican pesos and bear
interest at an average fixed rate of 11.03%, were utilized for
the purchase of additional ATMs to support the Companys
Mexico operations. As of September 30, 2007 and
December 31, 2006, approximately $53.6 million pesos
($4.9 million U.S.) and $9.3 million pesos
($0.9 million U.S.), respectively, were outstanding under
these facilities, with future borrowings to be individually
negotiated between the lender and Cardtronics. Pursuant to the
terms of the agreements, Cardtronics, Inc. has issued a guaranty
for 51.0% (its ownership percentage in Cardtronics Mexico) of
the obligations under the loan agreements. As of
September 30, 2007, the total amount of the guaranty was
$27.3 million pesos ($2.5 million U.S.).
F-18
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
9.
|
Asset Retirement
Obligations
|
The Company accounts for asset retirement obligations in
accordance with SFAS No. 143, Asset Retirement
Obligations. Asset retirement obligations consist primarily
of deinstallation costs of the ATM and the costs to restore the
ATM site to its original condition. The Company is legally
required to perform this deinstallation and restoration work. In
accordance with SFAS No. 143, for each group of ATMs,
the Company recognized the fair value of a liability for an
asset retirement obligation and capitalized that cost as part of
the cost basis of the related asset. The related assets are
being depreciated on a straight-line basis over the estimated
useful lives of the underlying ATMs, and the related liabilities
are being accreted to their full value over the same period of
time.
The following table is a summary of the changes in
Companys asset retirement obligation liability for the
nine month period ended September 30, 2007 (in thousands):
|
|
|
|
|
Asset retirement obligation as of January 1, 2007
|
|
$
|
9,989
|
|
Additional obligations
|
|
|
8,357
|
|
Accretion expense
|
|
|
831
|
|
Payments
|
|
|
(902
|
)
|
Change in estimates
|
|
|
(1,974
|
)
|
Foreign currency translation adjustments
|
|
|
91
|
|
|
|
|
|
|
Asset retirement obligation as of September 30, 2007
|
|
$
|
16,392
|
|
|
|
|
|
|
The additional obligations amount for the nine months ended
September 30, 2007, reflects new ATM deployments in all of
the Companys markets during this period and the
obligations assumed in connection with the 7-Eleven ATM
Transaction. The change in estimate for the nine months ended
September 30, 2007 represents a change in the anticipated
amount the Company will incur to deinstall and refurbish certain
merchant locations, based on actual costs incurred on recent ATM
deinstallations.
|
|
10.
|
Other Long-term
Liabilities
|
The Companys other long-term liabilities consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(In thousands)
|
|
|
Deferred revenue
|
|
$
|
1,760
|
|
|
$
|
481
|
|
Other deferred liabilities
|
|
|
10,347
|
|
|
|
161
|
|
Interest rate swaps
|
|
|
3,417
|
|
|
|
|
|
Minority interest in subsidiary
|
|
|
|
|
|
|
112
|
|
Other long-term liabilities
|
|
|
2,397
|
|
|
|
3,310
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,921
|
|
|
$
|
4,064
|
|
|
|
|
|
|
|
|
|
|
The increase in other deferred liabilities is due to the
$11.7 million in other long-term deferred liabilities
recorded to value certain unfavorable equipment leases and an
operating contract assumed as part of the 7-Eleven ATM
Transaction. These liabilities are being amortized over the
remaining terms of the underlying contracts and serve to reduce
the corresponding ATM operating expense amounts to fair value.
During the three and nine months ended September 30, 2007,
the Company recognized approximately $1.7 million of
expense reductions associated with the amortization of these
liabilities.
F-19
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The minority interest in subsidiary amount as of
December 31, 2006, represents the equity interests of the
minority shareholders of Cardtronics Mexico. As of
September 30, 2007, the cumulative losses generated by
Cardtronics Mexico and allocable to such minority interest
shareholders exceeded the underlying equity amounts of such
minority interest shareholders. Accordingly, all future losses
generated by Cardtronics Mexico will be allocated 100% to
Cardtronics until such time that Cardtronics Mexico generates a
cumulative amount of earnings sufficient to cover all excess
losses allocable to the Company, or until such time that the
minority interest shareholders contribute additional equity to
Cardtronics Mexico in an amount sufficient to cover such losses.
As of September 30, 2007, the cumulative amount of excess
losses allocated to Cardtronics totaled approximately $132,000.
Such amount is net of a contribution of $174,000 made by the
minority interest shareholder in the third quarter of 2007. See
Note 17 for additional information on this minority
interest contribution.
During 2005, the Company issued 929,789 shares of its
Series B preferred stock, of which 894,568 shares were
issued to TA Associates for $75.0 million in proceeds and
the remaining 35,221 shares were issued as partial
consideration for the Bank Machine acquisition. The
Series B preferred shareholders have certain preferences to
the Companys common shareholders, including board
representation rights and the right to receive their original
issue price prior to any distributions being made to the common
shareholders as part of a liquidation, dissolution or winding up
of the Company. As of September 30, 2007, the liquidation
value of the shares totaled $78.0 million. In addition, the
Series B preferred shares are convertible into the same
number of shares of the Companys common stock, as adjusted
for future stock splits and the issuance of dilutive securities.
The Series B preferred shares have no stated dividends and
are redeemable at the option of a majority of the Series B
holders at any time on or after the earlier of (i) December
2013 and (ii) the date that is 123 days after the
first day that none of the Companys 9.25% senior
subordinated notes remain outstanding, but in no event earlier
than February 2012.
On June 1, 2007, the Company entered into a letter
agreement with certain investment funds controlled by TA
Associates (the Funds) pursuant to which the Funds
agreed to (i) approve the 7-Eleven ATM Transaction and
(ii) not transfer or otherwise dispose of any of their
shares of Series B Convertible Preferred Stock during the
period beginning on the date thereof and ending on the earlier
of the date the 7-Eleven ATM Transaction closed (i.e.,
July 20, 2007) or September 1, 2007. Pursuant to
the terms of the letter agreement, the Company amended the terms
of its Series B Convertible Preferred Stock in order to
increase, under certain circumstances, the number of shares of
common stock into which the Funds Series B
Convertible Preferred Stock would be convertible in the event
the Company completes an initial public offering. The Company
has filed a registration statement on
Form S-1
relating to an initial public offering of shares of its common
stock. Based on the $10.50 per share mid-point of the offering
range, the incremental shares received by the Funds in
connection with this beneficial conversion would total
$33.0 million. Such amount would be reflected as a
reduction of the Companys net income (or an increase in
the Companys net loss) available to common shareholders
immediately upon the conversion and completion of the initial
public offering.
The carrying value of the Companys Series B
Convertible Preferred Stock was $76.8 million and
$76.6 million, net of unaccreted issuance costs of
approximately $1.2 million and $1.4 million as of
September 30, 2007 and December 31, 2006,
respectively. Such issuance costs are
F-20
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
being accreted on a straight-line basis through February 2012,
which represents the earliest optional redemption date outlined
above.
Income taxes included in the Companys net loss for the
three and nine month periods ended September 30, 2007 and
2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
(In thousands)
|
|
Income tax provision (benefit)
|
|
$
|
2,275
|
|
|
$
|
(60
|
)
|
|
$
|
3,212
|
|
|
$
|
(1,217
|
)
|
Effective tax rate
|
|
|
(27.1
|
)%
|
|
|
15.5
|
%
|
|
|
(19.5
|
)%
|
|
|
31.2
|
%
|
The Company computes its quarterly income tax provision amounts
under the effective tax rate method based on applying an
anticipated annual effective tax rate in each major tax
jurisdiction to the pre-tax book income or loss amounts
generated in such jurisdictions. During the second quarter of
2007, as a result of the Companys forecasted domestic
pre-tax book loss for the remainder of 2007 and as a result of
the anticipated impact of the 7-Eleven ATM Transaction on the
Companys forecasted domestic pre-tax book loss figures for
the remainder of 2007, the Company determined that a valuation
allowance should be established for the Companys existing
domestic net deferred tax asset balance as it is more likely
than not that such net benefits will not be realized.
Additionally, the Company determined that all future domestic
tax benefits should not be recognized until it is more likely
than not that such benefits will be utilized.
During the three month period ended September 30, 2007, the
Company increased its domestic valuation allowance by
$2.5 million, reflecting the increase in the Companys
net deferred tax asset balance subsequent to June 30, 2007.
Such change was primarily due to a reduction in the estimated
deferred tax liabilities associated with the Companys
interest rate swaps as a result of the interest rate declines
experienced during that period, and the creation of additional
net operating losses from tax deductions that are currently not
anticipated to reverse prior to the expiration of such losses.
Finally, during the three and nine month periods ended
September 30, 2007, the Company did not record
approximately $2.9 million and $5.4 million,
respectively, in potential tax benefits associated with current
period losses, based on the above policy. These items, coupled
with the establishment of the valuation allowance during the
periods ended September 30, 2007, resulted in the negative
effective tax rates reflected in the table above for the 2007
periods.
In addition to the above, the Company recorded a
$0.2 million deferred tax benefit during the three month
period ended September 30, 2007 related to a reduction in
the United Kingdom corporate statutory income tax rate from 30%
to 28%. Such rate reduction, which will become effective in
2008, was formally enacted in July 2007.
|
|
13.
|
Commitments and
Contingencies
|
Legal and
Other Regulatory Matters
National Federation of the Blind
(NFB). In connection with its
acquisition of the E*TRADE Access, Inc. (ETA) ATM
portfolio in June 2004, the Company assumed ETAs interests
and liability for a lawsuit instituted in the United States
District Court for the District of Massachusetts (the
Court) by the NFB, the NFBs Massachusetts
chapter, and several
F-21
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
individual blind persons (collectively, the Private
Plaintiffs) as well as the Commonwealth of Massachusetts
with respect to claims relating to the alleged inaccessibility
of ATMs for those persons who are visually-impaired. After the
acquisition of the ETA ATM portfolio, the Private Plaintiffs
named Cardtronics as a co-defendant with ETA and ETAs
parent E*Trade Bank, and the scope of the lawsuit
has expanded to include both ETAs ATMs as well as the
Companys pre-existing ATM portfolio.
In June 2007, the parties completed and executed a settlement
agreement, which the Company believes will be approved by the
Court. The principal objective of the settlement is for 90% of
all transactions (as defined in the settlement agreement)
conducted on Cardtronics Company-owned and merchant-owned
ATMs by July 1, 2010 to be conducted at ATMs that are
voice-guided. In an effort to accomplish such objective, the
Company is subject to numerous interim reporting requirements
and a one-time obligation to market voice-guided ATMs to a
subset of its merchants that do not currently have voice-guided
ATMs. Finally, the proposed settlement requires the Company to
pay $900,000 in attorneys fees to the NFB and to make a
$100,000 contribution to the Massachusetts local consumer
aid fund. These amounts have been fully reserved for as of
September 30, 2007. The Company does not believe that the
settlement requirements outlined above will have a material
impact on its financial condition or results of operations.
Since the above matter is being treated as a class action
settlement, the Company and the Private Plaintiffs were required
to give notice to the affected classes. Such notices were
provided during the third quarter of 2007, which required
members of the affected class to file any objections with the
Court no later than October 31, 2007. It is the
Companys understanding that no meaningful objections were
filed with the Court. Although no meaningful objections were
filed in a timely manner, it is possible that objections could
be filed before the hearing date, and the Court could consider
such objections, or on its own volition, and object to the
settlement. The Court has scheduled a hearing for
December 4, 2007. Although the Company expects that the
Court will approve the proposed settlement, if for any reason
the Court refuses to approve the settlement, the lawsuit would
resume and, if that occurs, the Company will continue its
defense of this lawsuit in an aggressive manner.
Other matters. In June 2006, Duane Reade, Inc.
(Customer), one of the Companys merchant
customers, filed a complaint in the United States District Court
for the Southern District of New York (the Federal
Action). The complaint, which was formally served to the
Company in September 2006, alleged that Cardtronics had breached
an ATM operating agreement between the parties by failing to pay
the Customer the proper amount of fees under the agreement. The
Customer is claiming that it is owed no less than $600,000 in
lost revenues, exclusive of interests and costs, and projects
that additional damages will accrue to them at a rate of
approximately $100,000 per month, exclusive of interest and
costs. As the term of the Companys operating agreement
with the Customer extends to December 2014, the Customers
claims could exceed $12.0 million. On October 6, 2006,
the Company filed a petition in the District Court of Harris
County, Texas, seeking a declaratory judgment that it had not
breached the ATM operating agreement. On October 10, 2006,
the Customer filed a second complaint, this time in New York
State Supreme Court, alleging the same claims it had alleged in
the Federal Action. Subsequently, the Customer withdrew the
Federal Action because the federal court did not have subject
matter jurisdiction. Additionally, Cardtronics has voluntarily
dismissed the Texas lawsuit, electing to litigate the
above-described claims in the New York State Supreme Court. In
response to a motion for summary judgment filed by the Customer
and a cross-motion filed by the Company, the New York State
Supreme Court ruled on September 21, 2007 that the
Companys interpretation of the ATM operating agreement was
the appropriate
F-22
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
interpretation and expressly rejected the Customers
proposed interpretations. In the event the Customer appeals this
ruling, the Company will continue its aggressive defense of this
lawsuit. Further, the Company believes that the ultimate
resolution of this dispute will not have a material adverse
impact on its financial condition or results of operations.
In March 2006, the Company filed a complaint in the United
States District Court in Portland, Oregon, against CGI, Inc.
(Distributor), a distributor for the ETA ATM
business acquired by the Company. The complaint alleged that the
Distributor breached the parties agreement by directly
competing with Cardtronics on certain merchant accounts. The
Distributor denied such violations, alleging that an oral
modification of its distributor agreement with ETA permitted
such activities, and initiated a counter-claim for alleged
under-payments by us. The Company expressly denied the
Distributors allegations. On July 31, 2007, the
parties executed a settlement agreement wherein neither party
admitted any wrongdoing, all differences were resolved, and both
parties released each other from all claims made in the lawsuit.
In connection with this settlement, the Distributor agreement
was re-instated in a modified form to, among other things,
clarify the Distributors non-compete obligations.
Additionally, the settlement provided for a nominal payment to
the Distributor relating to payments claimed under the
distributor agreement. Subsequent to the execution of the
settlement agreement, both parties have operated under the
revised distributorship agreement without any material issues or
disputes.
The Company is also subject to various legal proceedings and
claims arising in the ordinary course of its business.
Additionally, the 7-Eleven Financial Services Business acquired
by the Company is subject to various legal claims and
proceedings in the ordinary course of its business. The Company
does not expect the outcome in any of these legal proceedings,
individually or collectively, to have a material adverse effect
on its financial condition or results of operations.
Capital and
Operating Lease Obligations
As a result of the 7-Eleven ATM Transaction, the Company assumed
responsibility for certain capital and operating lease contracts
that will expire at various times during the next three years.
Upon the fulfillment of certain payment obligations related to
the capital leases, ownership of the ATMs transfers to the
Company. As of September 30, 2007, approximately
$2.3 million of capital lease obligations were included
within the Companys condensed consolidated balance sheet.
Additionally, in conjunction with its purchase price allocation
related to the 7-Eleven ATM Transaction, the Company recorded
approximately $8.7 million of other deferred liabilities
(current and long-term) to value certain unfavorable equipment
operating leases assumed as part of the acquisition. These
liabilities are being amortized over the remaining terms of the
underlying leases, the majority of which expire in late 2009,
and serve to reduce ATM operating lease expense amounts to fair
value. During the three and nine month periods ended
September 30, 2007, the Company recognized approximately
$0.7 million of operating lease expense reductions
associated with the amortization of these liabilities. Upon the
expiration of the operating leases, the Company will be required
to renew such lease contracts, enter into new lease contracts,
or purchase new or used ATMs to replace the leased equipment. If
the Company decides to purchase ATMs and terminate the existing
lease contracts at that time, it is currently anticipated that
the Company will incur between $13.0 and $16.0 million in
related capital expenditures. Additionally, in conjunction with
the acquisition, the Company posted
F-23
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
$7.5 million in letters of credit related to these
operating and capital leases. See Note 8 for additional
details on these letters of credit.
|
|
14.
|
Derivative
Financial Instruments
|
As a result of its variable-rate debt and ATM cash management
activities, the Company is exposed to changes in interest rates
(LIBOR in the United States and the United Kingdom, the federal
funds effective rate in the United States, and the Mexican
Interbank Rate (TIIE) in Mexico). It is the
Companys policy to limit the variability of a portion of
its expected future interest payments as a result of changes in
LIBOR by utilizing certain types of derivative financial
instruments.
To meet the above objective, the Company entered into several
LIBOR-based interest rate swaps during 2004 and 2005 to fix the
interest-based rental rate paid on $300.0 million of the
Companys current and anticipated outstanding ATM cash
balances in the United States. The effect of such swaps was to
fix the interest-based rental rate paid on the following
notional amounts for the periods identified (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Notional Amount
|
|
Fixed Rate
|
|
|
Period
|
|
|
$300,000
|
|
|
4.00
|
%
|
|
|
October 1, 2007 December 31, 2007
|
|
$300,000
|
|
|
4.35
|
%
|
|
|
January 1, 2008 December 31, 2008
|
|
$200,000
|
|
|
4.36
|
%
|
|
|
January 1, 2009 December 31, 2009
|
|
$100,000
|
|
|
4.34
|
%
|
|
|
January 1, 2010 December 31, 2010
|
|
Additionally, in conjunction with the 7-Eleven ATM Transaction,
the Company entered into a separate vault cash agreement with
Wells Fargo, N.A. (Wells Fargo) to supply the cash
that the Company utilizes for the operation of the 5,500 ATMs
and Vcom units the Company acquired in that transaction. Under
the terms of the vault cash agreement, the Company pays a
monthly cash rental fee to Wells Fargo on the average amount of
cash outstanding under a formula based on the federal funds
effective rate. Subsequent to the acquisition date
(July 20, 2007), the outstanding vault cash balance for the
acquired 7-Eleven ATMs and Vcom units has averaged approximately
$350.0 million. As a result, the Companys exposure to
changes in domestic interest rates has increased significantly.
Accordingly, the Company entered into additional interest rate
swaps in August 2007 to limit its exposure to changing
interest-based rental rates on $250.0 million of the
Companys current and anticipated 7-Eleven ATM cash
balances. The effect of these swaps was to fix the
interest-based rental rate paid on the $250.0 million
notional amount at 4.93% (excluding the applicable margin)
through December 2010.
The Companys interest rate swaps have been classified as
cash flow hedges pursuant to SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended. Accordingly, changes in the fair
values of the Companys interest rate swaps have been
reported in accumulated other comprehensive income in the
accompanying condensed consolidated balance sheets. As of
September 30, 2007, the unrealized loss on such swaps
totaled approximately $2.5 million, which was down from an
unrealized gain of $7.1 million as of December 31,
2006. Such decline was due to the significant drop in current
and forward interest rates that occurred in the financial
markets during the quarter ended September 30, 2007. The
unrealized gain amount as of December 31, 2006 has been
included in accumulated other comprehensive income net of income
taxes of $2.7 million. However, as a result of the
Companys overall net loss position for tax purposes, the
Company has not recorded deferred
F-24
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
taxes on the loss amount related to its interest rate hedges as
of September 30, 2007, as management does not believe that
the Company will be able to realize the benefits associated with
such deferred tax positions.
Net amounts paid or received under such swaps are recorded as
adjustments to the Companys Cost of ATM operating
revenues in the accompanying condensed consolidated
statements of operations. During the nine month periods ended
September 30, 2007 and 2006, gains or losses incurred as a
result of ineffectiveness associated with the Companys
interest rate swaps were immaterial.
As of September 30, 2007, the Company has not entered into
any derivative financial instruments to hedge its variable
interest rate exposure in the United Kingdom or Mexico.
Prior to the 7-Eleven ATM Transaction, the Companys
operations consisted of its United States, United Kingdom, and
Mexico segments. As a result of the 7-Eleven ATM Transaction,
the Company determined that the advanced-functionality Vcom
Services provided through the acquired Vcom units are distinctly
different than its other three segments and has identified the
Vcom operations as an additional separate segment
(Advanced Functionality). Accordingly, as of
September 30, 2007, the Companys operations consisted
of its United States, United Kingdom, Mexico, and Advanced
Functionality segments. The Companys United States
reportable segment now includes the traditional ATM operations
of the acquired 7-Eleven Financial Services Business, including
the traditional ATM activities conducted on the Vcom units.
While each of these reportable segments provides similar
kiosk-based and/or ATM-related services, each segment is managed
separately, as they require different marketing and business
strategies.
Management uses earnings before interest expense, income taxes,
depreciation expense, accretion expense, and amortization
expense (EBITDA) to assess the operating results and
effectiveness of its business segments. Management believes
EBITDA is useful because it allows them to more effectively
evaluate the Companys operating performance and compare
the results of its operations from period to period without
regard to its financing methods or capital structure.
Additionally, the Company excludes depreciation, accretion, and
amortization expense as these amounts can vary substantially
from company to company within its industry depending upon
accounting methods and book values of assets, capital structures
and the method by which the assets were acquired. EBITDA, as
defined by the Company, may not be comparable to similarly
titled measures employed by other companies and is not a measure
of performance calculated in accordance with accounting
principles generally accepted in the United States
(GAAP). Therefore, EBITDA should not be considered
in isolation or as a substitute for operating income, net
income, cash flows from operating, investing, and financing
activities or other income or cash flow statement data prepared
in accordance with GAAP.
F-25
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Below is a reconciliation of EBITDA to net loss for the three
and nine month periods ended September 30, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
EBITDA
|
|
$
|
16,741
|
|
|
$
|
13,323
|
|
|
$
|
37,722
|
|
|
$
|
38,552
|
|
Depreciation and accretion expense
|
|
|
6,961
|
|
|
|
5,214
|
|
|
|
18,541
|
|
|
|
14,072
|
|
Amortization expense
|
|
|
9,204
|
|
|
|
2,263
|
|
|
|
14,062
|
|
|
|
9,610
|
|
Interest expense, net, including the amortization and write-off
of financing costs and bond discounts
|
|
|
8,984
|
|
|
|
6,233
|
|
|
|
21,592
|
|
|
|
18,769
|
|
Income tax provision (benefit)
|
|
|
2,275
|
|
|
|
(60
|
)
|
|
|
3,212
|
|
|
|
(1,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,683
|
)
|
|
$
|
(327
|
)
|
|
$
|
(19,685
|
)
|
|
$
|
(2,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following tables reflect certain financial information for
each of the Companys reportable segments for the three and
nine month periods ended September 30, 2007 and 2006, and
as of September 30, 2007 and December 31, 2006. All
intercompany transactions between the Companys reportable
segments have been eliminated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2007
|
|
|
|
|
|
|
United
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Kingdom
|
|
|
Mexico
|
|
|
Functionality
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Revenue from external customers
|
|
$
|
91,259
|
|
|
$
|
17,192
|
|
|
$
|
1,451
|
|
|
$
|
685
|
|
|
$
|
|
|
|
$
|
110,587
|
|
Cost of revenues
|
|
|
69,586
|
|
|
|
12,339
|
|
|
|
1,152
|
|
|
|
2,644
|
|
|
|
|
|
|
|
85,721
|
|
Selling, general, and administrative expense
|
|
|
6,091
|
|
|
|
1,116
|
|
|
|
344
|
|
|
|
121
|
|
|
|
(51
|
)
|
|
|
7,621
|
|
EBITDA
|
|
$
|
15,036
|
|
|
$
|
3,611
|
|
|
$
|
(50
|
)
|
|
$
|
(2,080
|
)
|
|
$
|
224
|
|
|
$
|
16,741
|
|
Depreciation and accretion expense
|
|
$
|
4,862
|
|
|
$
|
1,997
|
|
|
$
|
93
|
|
|
$
|
|
|
|
$
|
9
|
|
|
$
|
6,961
|
|
Amortization expense
|
|
|
8,743
|
|
|
|
449
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
9,204
|
|
Interest expense, net
|
|
|
7,778
|
|
|
|
1,124
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
8,984
|
|
Capital
expenditures(1)(2)
|
|
$
|
9,685
|
|
|
$
|
9,833
|
|
|
$
|
865
|
|
|
$
|
226
|
|
|
$
|
|
|
|
$
|
20,609
|
|
Additions to equipment to be leased to customers
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2006
|
|
|
|
|
|
|
United
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Kingdom
|
|
|
Mexico
|
|
|
Functionality
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Revenue from external customers
|
|
$
|
64,346
|
|
|
$
|
11,747
|
|
|
$
|
272
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
76,365
|
|
Intersegment revenues
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
49,550
|
|
|
|
7,719
|
|
|
|
144
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
57,385
|
|
Selling, general, and administrative expense
|
|
|
4,814
|
|
|
|
803
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
5,811
|
|
EBITDA
|
|
$
|
10,259
|
|
|
$
|
3,210
|
|
|
$
|
(128
|
)
|
|
$
|
|
|
|
$
|
(18
|
)
|
|
$
|
13,323
|
|
Depreciation and accretion expense
|
|
$
|
4,096
|
|
|
$
|
1,106
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,214
|
|
Amortization expense
|
|
|
1,888
|
|
|
|
342
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
2,263
|
|
Interest expense, net
|
|
|
5,416
|
|
|
|
831
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
6,233
|
|
Capital
expenditures(1)(2)
|
|
$
|
8,592
|
|
|
$
|
5,744
|
|
|
$
|
91
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,427
|
|
F-27
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2007
|
|
|
|
|
|
|
United
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Kingdom
|
|
|
Mexico
|
|
|
Functionality
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Revenue from external customers
|
|
$
|
213,186
|
|
|
$
|
45,533
|
|
|
$
|
2,940
|
|
|
$
|
685
|
|
|
$
|
|
|
|
$
|
262,344
|
|
Intersegment revenues
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
|
|
Cost of revenues
|
|
|
165,188
|
|
|
|
32,650
|
|
|
|
2,454
|
|
|
|
2,644
|
|
|
|
(50
|
)
|
|
|
202,886
|
|
Selling, general, and administrative expense
|
|
|
16,735
|
|
|
|
3,152
|
|
|
|
961
|
|
|
|
121
|
|
|
|
16
|
|
|
|
20,985
|
|
EBITDA
|
|
$
|
30,773
|
|
|
$
|
9,394
|
|
|
$
|
(491
|
)
|
|
$
|
(2,080
|
)
|
|
$
|
126
|
|
|
$
|
37,722
|
|
Depreciation and accretion expense
|
|
$
|
13,392
|
|
|
$
|
5,007
|
|
|
$
|
162
|
|
|
$
|
|
|
|
$
|
(20
|
)
|
|
$
|
18,541
|
|
Amortization expense
|
|
|
12,747
|
|
|
|
1,278
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
14,062
|
|
Interest expense, net
|
|
|
18,262
|
|
|
|
3,156
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
21,592
|
|
Capital
expenditures(1)(2)
|
|
$
|
21,795
|
|
|
$
|
21,058
|
|
|
$
|
2,259
|
|
|
$
|
226
|
|
|
$
|
|
|
|
$
|
45,338
|
|
Additions to equipment to be leased to customers
|
|
|
|
|
|
|
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2006
|
|
|
|
|
|
|
United
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Kingdom
|
|
|
Mexico
|
|
|
Functionality
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Revenue from external customers
|
|
$
|
188,903
|
|
|
$
|
29,383
|
|
|
$
|
474
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
218,760
|
|
Intersegment revenues
|
|
|
(216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
Cost of revenues
|
|
|
145,767
|
|
|
|
19,456
|
|
|
|
295
|
|
|
|
|
|
|
|
(151
|
)
|
|
|
165,367
|
|
Selling, general, and administrative expense
|
|
|
12,979
|
|
|
|
2,372
|
|
|
|
361
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
15,709
|
|
EBITDA
|
|
$
|
31,378
|
|
|
$
|
7,394
|
|
|
$
|
(155
|
)
|
|
$
|
|
|
|
$
|
(65
|
)
|
|
$
|
38,552
|
|
Depreciation and accretion expense
|
|
$
|
10,979
|
|
|
$
|
3,067
|
|
|
$
|
26
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,072
|
|
Amortization expense
|
|
|
8,698
|
|
|
|
879
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
9,610
|
|
Interest expense, net
|
|
|
16,353
|
|
|
|
2,415
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
18,769
|
|
Capital
expenditures(1)(2)
|
|
$
|
16,749
|
|
|
$
|
9,052
|
|
|
$
|
220
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26,021
|
|
|
|
|
(1) |
|
Capital expenditure amounts presented above include payments
made for exclusive license agreements and site acquisition costs. |
|
(2) |
|
Capital expenditure amounts for Cardtronics Mexico are reflected
gross of any minority interest amounts. Additionally, the 2006
capital expenditure amount excludes the Companys initial
$1.0 million investment in Cardtronics Mexico. |
F-28
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Identifiable
Assets:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
396,339
|
|
|
$
|
238,127
|
|
United Kingdom
|
|
|
148,467
|
|
|
|
126,070
|
|
Mexico
|
|
|
9,730
|
|
|
|
3,559
|
|
Advanced Functionality
|
|
|
7,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
562,201
|
|
|
$
|
367,756
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
New Accounting
Pronouncements
|
Accounting for Uncertainty in Income
Taxes. During the first quarter of 2007, the
Company adopted the provisions of Financial Accounting Standards
Board (FASB) Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement
No. 109. This interpretation clarifies the accounting
for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
SFAS No. 109, Accounting for Income Taxes. The
interpretation prescribes a recognition threshold and
measurement attribute for a tax position taken or expected to be
taken in a tax return and also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The
Company applied the provisions of FIN 48 to all tax
positions upon its initial adoption effective January 1,
2007, and determined that no cumulative effect adjustment was
required as of such date. As of September 30, 2007, the
Company had a $0.2 million reserve for uncertain tax
positions recorded pursuant to FIN 48.
Fair Value Measurements. In September 2006,
the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS No. 157), which
provides guidance on measuring the fair value of assets and
liabilities in the financial statements. The provisions of
SFAS No. 157 are effective for fiscal years beginning
after November 15, 2007, and interim periods within those
fiscal years. The Company is currently evaluating the impact, if
any, this statement will have on its financial statements.
Fair Value Option. In February 2007, the FASB
issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities
(SFAS No. 159), which provides companies
the option to measure certain financial instruments and other
items at fair value. The provisions of SFAS No. 159
are effective as of the beginning of fiscal years beginning
after November 15, 2007. The Company is currently
evaluating the impact, if any, this statement will have on its
financial statements.
Registration Payment Arrangements. In December
2006, the FASB issued FASB Staff Position (FSP)
Emerging Issues Task Force (EITF)
No. 00-19-2,
Accounting for Registration Payment Arrangements
(FSP EITF 00-19-2), which addresses an issuers
accounting for registration payment arrangements. Specifically,
FSP EITF 00-19-2 specifies that the contingent obligation to
make future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate
agreement or included as a provision of a financial instrument
or other agreement, should be separately recognized and measured
in accordance with SFAS No. 5, Accounting for
Contingencies. The guidance contained in this standard
amends SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, and
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity, as well as FIN 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, to
F-29
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
include scope exceptions for registration payment arrangements.
FSP EITF 00-19-2 is effective immediately for registration
payment arrangements and the financial instruments subject to
those arrangements that are entered into or modified subsequent
to the date of issuance of this standard. For registration
payment arrangements and financial instruments subject to those
arrangements that were entered into prior to the issuance of
this standard, the guidance in the standard is effective for
financial statements issued for fiscal years beginning after
December 15, 2006, and interim periods within those fiscal
years. The Companys adoption of this standard had no
impact on its financial statements. The Company is currently
evaluating the impact that the implementation of FSP EITF
00-19-2 may have on its financial statements as it relates to
the Companys issuance of $100.0 million of
Series B Notes in July 2007. The Company has agreed to file
a registration statement with the SEC within 240 days of
the issuance of the Series B Notes with respect to an offer
to exchange each of the Series B Notes for a new issue of
its debt securities registered under the Securities Act and to
use reasonable best efforts to have the exchange offer become
effective as soon as reasonably practicable after filing but in
any event no later than 360 days after the initial issuance
date of the Series B Notes.
|
|
17.
|
Related Party
Transactions
|
Series B Convertible Preferred Stock
Amendment. On June 1, 2007, the Company
entered into a letter agreement to amend the terms of its
Series B Convertible Preferred Stock in order to increase,
under certain circumstances, the number of shares of common
stock into which the Funds Series B Convertible
Preferred Stock would be convertible in the event the Company
completes an initial public offering. For additional information
on this amendment, see Note 11.
Cardtronics Mexico Capital Contribution. In
June 2007, the Company purchased an additional
1,177,429 shares of Class B preferred stock issued by
Cardtronics Mexico for approximately $0.2 million. The
Companys 51.0% ownership interest in Cardtronics Mexico
did not change as a result of this purchase, as a minority
interest shareholder has entered into an agreement to purchase a
pro rata amount of Class A preferred stock at the same
price. In August 2007, the minority interest shareholder funded
the $0.2 million purchase consideration related to its
additional share purchase. As of the date of contribution, the
cumulative losses generated by Cardtronics Mexico and allocable
to such minority interest shareholder had exceeded the minority
interest shareholders equity investment in Cardtronics Mexico.
Accordingly, incremental losses generated by Cardtronics Mexico
have been (and continue to be) allocated 100% to Cardtronics. As
the incremental losses previously allocated to Cardtronics on
behalf of the minority interest shareholders exceeded the
$0.2 million minority interest contribution, 100% of this
contribution was recognized by Cardtronics as income.
All future losses generated by Cardtronics Mexico will continue
to be allocated 100% to Cardtronics until such time that
Cardtronics Mexico generates a cumulative amount of earnings
sufficient to cover all excess losses allocable to the Company,
or until such time that the minority interest shareholders
contribute additional equity to Cardtronics Mexico in an amount
sufficient to cover such losses.
Common Stock Repurchase. During the three
months ended September 30, 2006, the Company repurchased
15,255 shares of the Companys common stock held by
certain of the Companys executive officers for
approximately $1.3 million in proceeds. Such proceeds were
primarily utilized by the executive officers to repay certain
loans, including all accrued and unpaid interest related
thereto, made between such executive officers and the Company in
2003. Such loans were required to be repaid pursuant to SEC
rules and regulations prohibiting registrants from having loans
with executive officers. This was effective as a result of the
F-30
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
successful registration of the Companys senior
subordinated notes with the SEC in September 2006.
|
|
18.
|
Supplemental
Guarantor Financial Information
|
The Companys senior subordinated notes issued in August
2005, as well as its Series B Notes issued in July 2007,
are guaranteed on a full and unconditional basis by the
Companys domestic subsidiaries. The following information
sets forth the condensed consolidating statements of operations
for the three and nine month periods ended September 30,
2007 and 2006, the condensed consolidating balance sheets as of
September 30, 2007 and December 31, 2006, and the
condensed consolidating statements of cash flows for the nine
month periods ended September 30, 2007 and 2006, of
(i) Cardtronics, Inc., the parent company and issuer of the
senior subordinated notes (the Parent);
(ii) the Companys domestic subsidiaries on a combined
basis (collectively, the Guarantors); and
(iii) the Companys international subsidiaries on a
combined basis (collectively, the Non-Guarantors):
F-31
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Condensed
Consolidating Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
91,944
|
|
|
$
|
18,643
|
|
|
$
|
|
|
|
$
|
110,587
|
|
Operating costs and expenses
|
|
|
320
|
|
|
|
91,727
|
|
|
|
17,502
|
|
|
|
(42
|
)
|
|
|
109,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(320
|
)
|
|
|
217
|
|
|
|
1,141
|
|
|
|
42
|
|
|
|
1,080
|
|
Interest expense, net
|
|
|
2,142
|
|
|
|
5,636
|
|
|
|
1,206
|
|
|
|
|
|
|
|
8,984
|
|
Equity in (earnings) losses of subsidiaries
|
|
|
6,005
|
|
|
|
|
|
|
|
|
|
|
|
(6,005
|
)
|
|
|
|
|
Other (income) expense, net
|
|
|
|
|
|
|
547
|
|
|
|
131
|
|
|
|
(174
|
)
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(8,467
|
)
|
|
|
(5,966
|
)
|
|
|
(196
|
)
|
|
|
6,221
|
|
|
|
(8,408
|
)
|
Income tax provision (benefit)
|
|
|
2,432
|
|
|
|
53
|
|
|
|
(210
|
)
|
|
|
|
|
|
|
2,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(10,899
|
)
|
|
|
(6,019
|
)
|
|
|
14
|
|
|
|
6,221
|
|
|
|
(10,683
|
)
|
Preferred stock accretion expense
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(10,966
|
)
|
|
$
|
(6,019
|
)
|
|
$
|
14
|
|
|
$
|
6,221
|
|
|
$
|
(10,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
64,392
|
|
|
$
|
12,019
|
|
|
$
|
(46
|
)
|
|
$
|
76,365
|
|
Operating costs and expenses
|
|
|
311
|
|
|
|
60,037
|
|
|
|
10,353
|
|
|
|
(28
|
)
|
|
|
70,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(311
|
)
|
|
|
4,355
|
|
|
|
1,666
|
|
|
|
(18
|
)
|
|
|
5,692
|
|
Interest expense, net
|
|
|
2,229
|
|
|
|
3,187
|
|
|
|
817
|
|
|
|
|
|
|
|
6,233
|
|
Equity in (earnings) losses of subsidiaries
|
|
|
(1,778
|
)
|
|
|
|
|
|
|
|
|
|
|
1,778
|
|
|
|
|
|
Other (income) expense, net
|
|
|
|
|
|
|
(184
|
)
|
|
|
78
|
|
|
|
(48
|
)
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(762
|
)
|
|
|
1,352
|
|
|
|
771
|
|
|
|
(1,748
|
)
|
|
|
(387
|
)
|
Income tax (benefit) provision
|
|
|
(405
|
)
|
|
|
63
|
|
|
|
282
|
|
|
|
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(357
|
)
|
|
|
1,289
|
|
|
|
489
|
|
|
|
(1,748
|
)
|
|
|
(327
|
)
|
Preferred stock accretion expense
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(424
|
)
|
|
$
|
1,289
|
|
|
$
|
489
|
|
|
$
|
(1,748
|
)
|
|
$
|
(394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
213,953
|
|
|
$
|
48,473
|
|
|
$
|
(82
|
)
|
|
$
|
262,344
|
|
Operating costs and expenses
|
|
|
909
|
|
|
|
209,918
|
|
|
|
45,701
|
|
|
|
(54
|
)
|
|
|
256,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(909
|
)
|
|
|
4,035
|
|
|
|
2,772
|
|
|
|
(28
|
)
|
|
|
5,870
|
|
Interest expense, net
|
|
|
6,502
|
|
|
|
11,760
|
|
|
|
3,330
|
|
|
|
|
|
|
|
21,592
|
|
Equity in (earnings) losses of subsidiaries
|
|
|
9,240
|
|
|
|
|
|
|
|
|
|
|
|
(9,240
|
)
|
|
|
|
|
Other (income) expense, net
|
|
|
(112
|
)
|
|
|
684
|
|
|
|
353
|
|
|
|
(174
|
)
|
|
|
751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(16,539
|
)
|
|
|
(8,409
|
)
|
|
|
(911
|
)
|
|
|
9,386
|
|
|
|
(16,473
|
)
|
Income tax provision (benefit)
|
|
|
3,292
|
|
|
|
158
|
|
|
|
(238
|
)
|
|
|
|
|
|
|
3,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(19,831
|
)
|
|
|
(8,567
|
)
|
|
|
(673
|
)
|
|
|
9,386
|
|
|
|
(19,685
|
)
|
Preferred stock accretion expense
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(20,031
|
)
|
|
$
|
(8,567
|
)
|
|
$
|
(673
|
)
|
|
$
|
9,386
|
|
|
$
|
(19,885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
189,119
|
|
|
$
|
29,857
|
|
|
$
|
(216
|
)
|
|
$
|
218,760
|
|
Operating costs and expenses
|
|
|
796
|
|
|
|
177,627
|
|
|
|
26,489
|
|
|
|
(154
|
)
|
|
|
204,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(796
|
)
|
|
|
11,492
|
|
|
|
3,368
|
|
|
|
(62
|
)
|
|
|
14,002
|
|
Interest expense, net
|
|
|
6,335
|
|
|
|
10,018
|
|
|
|
2,416
|
|
|
|
|
|
|
|
18,769
|
|
Equity in (earnings) losses of subsidiaries
|
|
|
(2,898
|
)
|
|
|
|
|
|
|
|
|
|
|
2,898
|
|
|
|
|
|
Other (income) expense, net
|
|
|
|
|
|
|
(956
|
)
|
|
|
133
|
|
|
|
(45
|
)
|
|
|
(868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(4,233
|
)
|
|
|
2,430
|
|
|
|
819
|
|
|
|
(2,915
|
)
|
|
|
(3,899
|
)
|
Income tax (benefit) provision
|
|
|
(1,568
|
)
|
|
|
37
|
|
|
|
314
|
|
|
|
|
|
|
|
(1,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(2,665
|
)
|
|
|
2,393
|
|
|
|
505
|
|
|
|
(2,915
|
)
|
|
|
(2,682
|
)
|
Preferred stock accretion expense
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(2,864
|
)
|
|
$
|
2,393
|
|
|
$
|
505
|
|
|
$
|
(2,915
|
)
|
|
$
|
(2,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Condensed
Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14
|
|
|
$
|
5,527
|
|
|
$
|
577
|
|
|
$
|
|
|
|
$
|
6,118
|
|
Receivables, net
|
|
|
(4,104
|
)
|
|
|
21,067
|
|
|
|
3,322
|
|
|
|
3,791
|
|
|
|
24,076
|
|
Other current assets
|
|
|
1,051
|
|
|
|
7,879
|
|
|
|
8,647
|
|
|
|
(328
|
)
|
|
|
17,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
(3,039
|
)
|
|
|
34,473
|
|
|
|
12,546
|
|
|
|
3,463
|
|
|
|
47,443
|
|
Property and equipment, net
|
|
|
|
|
|
|
90,203
|
|
|
|
48,336
|
|
|
|
(215
|
)
|
|
|
138,324
|
|
Intangible assets, net
|
|
|
9,074
|
|
|
|
110,305
|
|
|
|
15,311
|
|
|
|
|
|
|
|
134,690
|
|
Goodwill
|
|
|
|
|
|
|
150,627
|
|
|
|
85,861
|
|
|
|
|
|
|
|
236,488
|
|
Investments and advances to subsidiaries
|
|
|
65,906
|
|
|
|
|
|
|
|
|
|
|
|
(65,906
|
)
|
|
|
|
|
Intercompany receivable
|
|
|
(636
|
)
|
|
|
6,226
|
|
|
|
(5,590
|
)
|
|
|
|
|
|
|
|
|
Prepaid and other assets
|
|
|
359,675
|
|
|
|
3,523
|
|
|
|
1,733
|
|
|
|
(359,675
|
)
|
|
|
5,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
430,980
|
|
|
$
|
395,357
|
|
|
$
|
158,197
|
|
|
$
|
(422,333
|
)
|
|
$
|
562,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Deficit:
|
Current portion of long-term debt and notes payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
529
|
|
|
$
|
|
|
|
$
|
529
|
|
Current portion of capital leases
|
|
|
|
|
|
|
1,098
|
|
|
|
|
|
|
|
|
|
|
|
1,098
|
|
Current portion of other long-term liabilities
|
|
|
|
|
|
|
12,399
|
|
|
|
153
|
|
|
|
|
|
|
|
12,552
|
|
Accounts payable and accrued liabilities
|
|
|
6,369
|
|
|
|
47,727
|
|
|
|
21,453
|
|
|
|
3,469
|
|
|
|
79,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,369
|
|
|
|
61,224
|
|
|
|
22,135
|
|
|
|
3,469
|
|
|
|
93,197
|
|
Long-term debt, less current portion
|
|
|
401,559
|
|
|
|
266,925
|
|
|
|
97,291
|
|
|
|
(359,675
|
)
|
|
|
406,100
|
|
Capital leases
|
|
|
|
|
|
|
1,183
|
|
|
|
|
|
|
|
|
|
|
|
1,183
|
|
Deferred tax liability
|
|
|
5,587
|
|
|
|
1,230
|
|
|
|
3,126
|
|
|
|
|
|
|
|
9,943
|
|
Asset retirement obligations
|
|
|
|
|
|
|
11,946
|
|
|
|
4,446
|
|
|
|
|
|
|
|
16,392
|
|
Other non-current liabilities and minority interest
|
|
|
|
|
|
|
17,425
|
|
|
|
496
|
|
|
|
|
|
|
|
17,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
413,515
|
|
|
|
359,933
|
|
|
|
127,494
|
|
|
|
(356,206
|
)
|
|
|
544,736
|
|
Preferred stock
|
|
|
76,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,794
|
|
Stockholders equity (deficit)
|
|
|
(59,329
|
)
|
|
|
30,703
|
|
|
|
(66,127
|
)
|
|
|
(58,493
|
)
|
|
|
(59,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
430,980
|
|
|
$
|
395,357
|
|
|
$
|
158,197
|
|
|
$
|
(422,333
|
)
|
|
$
|
562,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
97
|
|
|
$
|
1,818
|
|
|
$
|
803
|
|
|
$
|
|
|
|
$
|
2,718
|
|
Receivables, net
|
|
|
3,463
|
|
|
|
13,068
|
|
|
|
1,966
|
|
|
|
(3,606
|
)
|
|
|
14,891
|
|
Other current assets
|
|
|
544
|
|
|
|
14,069
|
|
|
|
6,204
|
|
|
|
(39
|
)
|
|
|
20,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,104
|
|
|
|
28,955
|
|
|
|
8,973
|
|
|
|
(3,645
|
)
|
|
|
38,387
|
|
Property and equipment, net
|
|
|
|
|
|
|
59,512
|
|
|
|
27,326
|
|
|
|
(170
|
)
|
|
|
86,668
|
|
Intangible assets, net
|
|
|
6,982
|
|
|
|
45,757
|
|
|
|
15,024
|
|
|
|
|
|
|
|
67,763
|
|
Goodwill
|
|
|
|
|
|
|
86,702
|
|
|
|
82,861
|
|
|
|
|
|
|
|
169,563
|
|
Investments and advances to subsidiaries
|
|
|
81,076
|
|
|
|
|
|
|
|
|
|
|
|
(81,076
|
)
|
|
|
|
|
Intercompany receivable
|
|
|
(122
|
)
|
|
|
5,046
|
|
|
|
(4,924
|
)
|
|
|
|
|
|
|
|
|
Prepaid and other assets
|
|
|
211,175
|
|
|
|
5,006
|
|
|
|
369
|
|
|
|
(211,175
|
)
|
|
|
5,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
303,215
|
|
|
$
|
230,978
|
|
|
$
|
129,629
|
|
|
$
|
(296,066
|
)
|
|
$
|
367,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Deficit:
|
Current portion of long-term debt and notes payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
194
|
|
|
$
|
|
|
|
$
|
194
|
|
Current portion of other long-term liabilities
|
|
|
|
|
|
|
2,458
|
|
|
|
43
|
|
|
|
|
|
|
|
2,501
|
|
Accounts payable and accrued liabilities
|
|
|
8,458
|
|
|
|
32,202
|
|
|
|
14,218
|
|
|
|
(3,622
|
)
|
|
|
51,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
8,458
|
|
|
|
34,660
|
|
|
|
14,455
|
|
|
|
(3,622
|
)
|
|
|
53,951
|
|
Long-term debt, less current portion
|
|
|
251,883
|
|
|
|
132,351
|
|
|
|
79,641
|
|
|
|
(211,174
|
)
|
|
|
252,701
|
|
Deferred tax liability
|
|
|
3,340
|
|
|
|
1,040
|
|
|
|
3,245
|
|
|
|
|
|
|
|
7,625
|
|
Asset retirement obligations
|
|
|
|
|
|
|
7,673
|
|
|
|
2,316
|
|
|
|
|
|
|
|
9,989
|
|
Other non-current liabilities and minority interest
|
|
|
108
|
|
|
|
3,806
|
|
|
|
150
|
|
|
|
|
|
|
|
4,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
263,789
|
|
|
|
179,530
|
|
|
|
99,807
|
|
|
|
(214,796
|
)
|
|
|
328,330
|
|
Preferred stock
|
|
|
76,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,594
|
|
Stockholders equity (deficit)
|
|
|
(37,168
|
)
|
|
|
51,448
|
|
|
|
29,822
|
|
|
|
(81,270
|
)
|
|
|
(37,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
303,215
|
|
|
$
|
230,978
|
|
|
$
|
129,629
|
|
|
$
|
(296,066
|
)
|
|
$
|
367,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Condensed
Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(4,328)
|
|
|
$
|
25,198
|
|
|
$
|
14,319
|
|
|
$
|
|
|
|
$
|
35,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net
|
|
|
|
|
|
|
(21,711)
|
|
|
|
(22,243)
|
|
|
|
|
|
|
|
(43,954)
|
|
Payments for exclusive license agreements and site acquisition
costs
|
|
|
|
|
|
|
(307)
|
|
|
|
(1,074)
|
|
|
|
|
|
|
|
(1,381)
|
|
Additions to equipment to be leased to customers, net of
principal payments received
|
|
|
|
|
|
|
|
|
|
|
(390)
|
|
|
|
|
|
|
|
(390)
|
|
Acquisition of 7-Eleven Financial Services Business, net of cash
acquired
|
|
|
|
|
|
|
(138,570)
|
|
|
|
|
|
|
|
|
|
|
|
(138,570)
|
|
Proceeds from sale of Winn-Dixie equity securities
|
|
|
|
|
|
|
3,950
|
|
|
|
|
|
|
|
|
|
|
|
3,950
|
|
Proceeds received out of escrow related to BASC acquisition
|
|
|
|
|
|
|
876
|
|
|
|
|
|
|
|
|
|
|
|
876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(155,762)
|
|
|
|
(23,707)
|
|
|
|
|
|
|
|
(179,469)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
169,434
|
|
|
|
155,934
|
|
|
|
8,872
|
|
|
|
(163,982)
|
|
|
|
170,258
|
|
Repayments of long-term debt
|
|
|
(22,000)
|
|
|
|
(21,609)
|
|
|
|
(114)
|
|
|
|
21,360
|
|
|
|
(22,363)
|
|
Issuance of long-term notes receivable
|
|
|
(163,982)
|
|
|
|
|
|
|
|
|
|
|
|
163,982
|
|
|
|
|
|
Payments received on long-term notes receivable
|
|
|
21,360
|
|
|
|
|
|
|
|
|
|
|
|
(21,360)
|
|
|
|
|
|
Proceeds from borrowings under overdraft facility, net
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
54
|
|
Issuance of capital stock
|
|
|
46
|
|
|
|
(363)
|
|
|
|
363
|
|
|
|
|
|
|
|
46
|
|
Minority interest shareholder capital contribution
|
|
|
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
174
|
|
Other financing activities
|
|
|
(613)
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
(476)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,245
|
|
|
|
134,273
|
|
|
|
9,175
|
|
|
|
|
|
|
|
147,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
(13)
|
|
|
|
|
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(83)
|
|
|
|
3,709
|
|
|
|
(226)
|
|
|
|
|
|
|
|
3400
|
|
Cash and cash equivalents at beginning of period
|
|
|
97
|
|
|
|
1,818
|
|
|
|
803
|
|
|
|
|
|
|
|
2,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
14
|
|
|
$
|
5,527
|
|
|
$
|
577
|
|
|
$
|
|
|
|
$
|
6,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-36
CARDTRONICS,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(11,866
|
)
|
|
$
|
20,876
|
|
|
$
|
7,857
|
|
|
$
|
|
|
|
$
|
16,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net
|
|
|
|
|
|
|
(15,196
|
)
|
|
|
(8,883
|
)
|
|
|
|
|
|
|
(24,079
|
)
|
Payments for exclusive license agreements and site acquisition
costs
|
|
|
|
|
|
|
(1,544
|
)
|
|
|
(298
|
)
|
|
|
|
|
|
|
(1,842
|
)
|
Acquisitions, net of cash acquired
|
|
|
(1,039
|
)
|
|
|
27
|
|
|
|
|
|
|
|
1,000
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,039
|
)
|
|
|
(16,713
|
)
|
|
|
(9,181
|
)
|
|
|
1,000
|
|
|
|
(25,933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
30,300
|
|
|
|
9,900
|
|
|
|
|
|
|
|
(9,900
|
)
|
|
|
30,300
|
|
Repayments of long-term debt
|
|
|
(22,000
|
)
|
|
|
(14,900
|
)
|
|
|
|
|
|
|
14,900
|
|
|
|
(22,000
|
)
|
Issuance of long-term notes receivable
|
|
|
(9,900
|
)
|
|
|
|
|
|
|
|
|
|
|
9,900
|
|
|
|
|
|
Payments received on long-term notes receivable
|
|
|
14,900
|
|
|
|
|
|
|
|
|
|
|
|
(14,900
|
)
|
|
|
|
|
Issuance of capital stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
Other financing activities
|
|
|
(447
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
(477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
12,803
|
|
|
|
(5,030
|
)
|
|
|
1,000
|
|
|
|
(1,000
|
)
|
|
|
7,773
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(102
|
)
|
|
|
(867
|
)
|
|
|
(255
|
)
|
|
|
|
|
|
|
(1,224
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
118
|
|
|
|
1,544
|
|
|
|
37
|
|
|
|
|
|
|
|
1,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
16
|
|
|
$
|
677
|
|
|
$
|
(218
|
)
|
|
$
|
|
|
|
$
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
CARDTRONICS,
INC.
Consolidated
Financial Statements
December 31,
2006 and 2005
F-38
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Cardtronics, Inc:
We have audited the accompanying consolidated balance sheets of
Cardtronics, Inc. and subsidiaries as of December 31, 2006
and 2005, and the related consolidated statements of operations,
stockholders deficit, comprehensive income (loss), and
cash flows for each of the years in the three-year period ended
December 31, 2006. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Cardtronics, Inc. and
subsidiaries as of December 31, 2006 and 2005, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2006, in
conformity with U.S. generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial
statements, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123(R), Share-based
Payment, on January 1, 2006.
/s/ KPMG LLP
Houston, Texas
March 30, 2007
F-39
CARDTRONICS,
INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,718
|
|
|
$
|
1,699
|
|
Accounts and notes receivable, net of allowance of $373 and $686
as of December 31, 2006 and 2005, respectively
|
|
|
14,891
|
|
|
|
9,746
|
|
Inventory
|
|
|
4,444
|
|
|
|
2,747
|
|
Restricted cash, short-term
|
|
|
883
|
|
|
|
4,232
|
|
Deferred tax asset, net
|
|
|
273
|
|
|
|
1,105
|
|
Prepaid expenses, deferred costs, and other current assets
|
|
|
15,178
|
|
|
|
6,756
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
38,387
|
|
|
|
26,285
|
|
Restricted cash
|
|
|
34
|
|
|
|
33
|
|
Property and equipment, net
|
|
|
86,668
|
|
|
|
74,151
|
|
Intangible assets, net
|
|
|
67,763
|
|
|
|
75,965
|
|
Goodwill
|
|
|
169,563
|
|
|
|
161,557
|
|
Prepaid expenses and other assets
|
|
|
5,341
|
|
|
|
5,760
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
367,756
|
|
|
$
|
343,751
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt and notes payable
|
|
$
|
194
|
|
|
$
|
3,168
|
|
Current portion of other long-term liabilities
|
|
|
2,501
|
|
|
|
2,251
|
|
Accounts payable
|
|
|
16,915
|
|
|
|
7,285
|
|
Accounts payable to affiliates
|
|
|
|
|
|
|
310
|
|
Accrued liabilities
|
|
|
34,341
|
|
|
|
34,843
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
53,951
|
|
|
|
47,857
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt, net of related discount
|
|
|
252,701
|
|
|
|
244,456
|
|
Deferred tax liability, net
|
|
|
7,625
|
|
|
|
9,800
|
|
Other long-term liabilities and minority interest in subsidiary
|
|
|
14,053
|
|
|
|
14,393
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
328,330
|
|
|
|
316,506
|
|
Series B redeemable convertible preferred stock,
$0.0001 par value; 1,500,000 shares authorized;
929,789 shares issued and outstanding as of
December 31, 2006 and 2005; liquidation value of $78,000 as
of December 31, 2006 and 2005
|
|
|
76,594
|
|
|
|
76,329
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 5,000,000 shares
authorized; 2,394,509 shares issued as of December 31,
2006 and 2005; 1,760,798 and 1,771,349 outstanding at
December 31, 2006 and 2005, respectively
|
|
|
|
|
|
|
|
|
Subscriptions receivable (at face value)
|
|
|
(324
|
)
|
|
|
(1,476
|
)
|
Additional paid-in capital
|
|
|
2,857
|
|
|
|
2,033
|
|
Accumulated other comprehensive income (loss), net
|
|
|
11,658
|
|
|
|
(346
|
)
|
Accumulated deficit
|
|
|
(3,092
|
)
|
|
|
(2,252
|
)
|
Treasury stock; 633,711 and 623,160 shares at cost at
December 31, 2006 and 2005, respectively
|
|
|
(48,267
|
)
|
|
|
(47,043
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(37,168
|
)
|
|
|
(49,084
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
367,756
|
|
|
$
|
343,751
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-40
CARDTRONICS,
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
280,985
|
|
|
$
|
258,979
|
|
|
$
|
182,711
|
|
ATM product sales and other revenues
|
|
|
12,620
|
|
|
|
9,986
|
|
|
|
10,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
293,605
|
|
|
|
268,965
|
|
|
|
192,915
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of ATM operating revenues (includes stock-based
compensation of $51 and $172 in 2006 and 2005, respectively.
Excludes depreciation, accretion, and amortization expense,
shown separately below.)
|
|
|
209,850
|
|
|
|
199,767
|
|
|
|
143,504
|
|
Cost of ATM product sales and other revenues
|
|
|
11,443
|
|
|
|
9,681
|
|
|
|
8,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
221,293
|
|
|
|
209,448
|
|
|
|
152,207
|
|
Gross profit
|
|
|
72,312
|
|
|
|
59,517
|
|
|
|
40,708
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses (includes
stock-based compensation of $828, $2,201, and $956 in 2006,
2005, and 2004, respectively)
|
|
|
21,667
|
|
|
|
17,865
|
|
|
|
13,571
|
|
Depreciation and accretion expense
|
|
|
18,595
|
|
|
|
12,951
|
|
|
|
6,785
|
|
Amortization expense
|
|
|
11,983
|
|
|
|
8,980
|
|
|
|
5,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
52,245
|
|
|
|
39,796
|
|
|
|
25,864
|
|
Income from operations
|
|
|
20,067
|
|
|
|
19,721
|
|
|
|
14,844
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
23,143
|
|
|
|
15,485
|
|
|
|
4,155
|
|
Amortization and write-off of financing costs and bond discount
|
|
|
1,929
|
|
|
|
6,941
|
|
|
|
1,080
|
|
Minority interest in subsidiaries
|
|
|
(225
|
)
|
|
|
15
|
|
|
|
19
|
|
Other
|
|
|
(4,761
|
)
|
|
|
968
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
20,086
|
|
|
|
23,409
|
|
|
|
5,463
|
|
(Loss) income before income taxes
|
|
|
(19
|
)
|
|
|
(3,688
|
)
|
|
|
9,381
|
|
Income tax provision (benefit)
|
|
|
512
|
|
|
|
(1,270
|
)
|
|
|
3,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(531
|
)
|
|
|
(2,418
|
)
|
|
|
5,805
|
|
Preferred stock dividends and accretion expense
|
|
|
265
|
|
|
|
1,395
|
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(796
|
)
|
|
$
|
(3,813
|
)
|
|
$
|
3,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.46
|
)
|
|
$
|
(2.16
|
)
|
|
$
|
1.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.46
|
)
|
|
$
|
(2.16
|
)
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,749,328
|
|
|
|
1,766,419
|
|
|
|
2,238,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
1,749,328
|
|
|
|
1,766,419
|
|
|
|
2,372,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-41
CARDTRONICS,
INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Common Stock, par value $0.0001 per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Equity offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions Receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(1,476
|
)
|
|
$
|
(1,862
|
)
|
|
$
|
(2,305
|
)
|
Settlement of subscriptions receivable through repurchases of
capital stock
|
|
|
1,152
|
|
|
|
|
|
|
|
|
|
Repayment of subscriptions
|
|
|
|
|
|
|
386
|
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
(324
|
)
|
|
$
|
(1,476
|
)
|
|
$
|
(1,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid in Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
2,033
|
|
|
$
|
|
|
|
$
|
1,039
|
|
Issuance of capital stock
|
|
|
(55
|
)
|
|
|
1,590
|
|
|
|
27
|
|
Dividends on preferred stock
|
|
|
|
|
|
|
(98
|
)
|
|
|
(2,153
|
)
|
Tax benefit from stock option exercise
|
|
|
|
|
|
|
|
|
|
|
184
|
|
Stock-based compensation charges
|
|
|
879
|
|
|
|
541
|
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
2,857
|
|
|
$
|
2,033
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(346
|
)
|
|
$
|
886
|
|
|
$
|
|
|
Other comprehensive income (loss)
|
|
|
12,004
|
|
|
|
(1,232
|
)
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
11,658
|
|
|
$
|
(346
|
)
|
|
$
|
886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings (Accumulated Deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(2,252
|
)
|
|
$
|
1,495
|
|
|
$
|
(4,168
|
)
|
Dividends on preferred stock
|
|
|
|
|
|
|
(1,063
|
)
|
|
|
(159
|
)
|
Non-cash compensation charges
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Preferred stock issuance cost accretion
|
|
|
(265
|
)
|
|
|
(234
|
)
|
|
|
|
|
Distributions
|
|
|
(44
|
)
|
|
|
(32
|
)
|
|
|
(36
|
)
|
Net (loss) income
|
|
|
(531
|
)
|
|
|
(2,418
|
)
|
|
|
5,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
(3,092
|
)
|
|
$
|
(2,252
|
)
|
|
$
|
1,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(47,043
|
)
|
|
$
|
(859
|
)
|
|
$
|
(896
|
)
|
Issuance of capital stock
|
|
|
55
|
|
|
|
269
|
|
|
|
37
|
|
Purchase of treasury stock
|
|
|
(1,279
|
)
|
|
|
(46,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
(48,267
|
)
|
|
$
|
(47,043
|
)
|
|
$
|
(859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
$
|
(37,168
|
)
|
|
$
|
(49,084
|
)
|
|
$
|
(340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-42
CARDTRONICS,
INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net (loss) income
|
|
$
|
(531
|
)
|
|
$
|
(2,418
|
)
|
|
$
|
5,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
12,202
|
|
|
|
(5,491
|
)
|
|
|
|
|
Unrealized (losses) gains on interest rate cash flow hedges, net
of taxes of $258 in 2006, $(2,469) in 2005, and $(566) in 2004
|
|
|
(696
|
)
|
|
|
4,259
|
|
|
|
886
|
|
Unrealized gains on available-for-sale securities, net of taxes
of $293 in 2006
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
12,004
|
|
|
|
(1,232
|
)
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
11,473
|
|
|
$
|
(3,650
|
)
|
|
$
|
6,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-43
CARDTRONICS,
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(531
|
)
|
|
$
|
(2,418
|
)
|
|
$
|
5,805
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion expense
|
|
|
30,578
|
|
|
|
21,931
|
|
|
|
12,293
|
|
Amortization and write-off of financing costs and bond discount
|
|
|
1,929
|
|
|
|
6,941
|
|
|
|
1,080
|
|
Stock-based compensation expense
|
|
|
879
|
|
|
|
541
|
|
|
|
956
|
|
Deferred income taxes
|
|
|
454
|
|
|
|
(1,270
|
)
|
|
|
3,490
|
|
Non-cash receipt of Winn-Dixie equity securities
|
|
|
(3,394
|
)
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
(225
|
)
|
|
|
15
|
|
|
|
19
|
|
Loss on disposal of assets
|
|
|
1,603
|
|
|
|
1,036
|
|
|
|
209
|
|
Other reserves and non-cash items
|
|
|
1,219
|
|
|
|
363
|
|
|
|
|
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable, net
|
|
|
(4,105
|
)
|
|
|
2,176
|
|
|
|
(4,344
|
)
|
(Increase) decrease in prepaid, deferred costs, and other
current assets
|
|
|
(3,783
|
)
|
|
|
378
|
|
|
|
(407
|
)
|
(Increase) decrease in inventory
|
|
|
(694
|
)
|
|
|
1,060
|
|
|
|
487
|
|
Decrease in notes receivable, net
|
|
|
155
|
|
|
|
439
|
|
|
|
758
|
|
(Increase) decrease in other assets
|
|
|
(1,718
|
)
|
|
|
(600
|
)
|
|
|
79
|
|
Increase (decrease) in accounts payable
|
|
|
5,436
|
|
|
|
(1,085
|
)
|
|
|
(4,349
|
)
|
Increase in accrued liabilities
|
|
|
813
|
|
|
|
7,190
|
|
|
|
2,107
|
|
(Decrease) increase in other liabilities
|
|
|
(3,170
|
)
|
|
|
(3,470
|
)
|
|
|
2,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
25,446
|
|
|
|
33,227
|
|
|
|
20,466
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(32,537
|
)
|
|
|
(27,261
|
)
|
|
|
(18,622
|
)
|
Payments for exclusive license agreements and site acquisition
costs
|
|
|
(3,357
|
)
|
|
|
(4,665
|
)
|
|
|
(1,125
|
)
|
Additions to equipment to be leased to customers
|
|
|
(197
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment
|
|
|
130
|
|
|
|
78
|
|
|
|
446
|
|
Acquisitions, net of cash acquired
|
|
|
(12
|
)
|
|
|
(108,112
|
)
|
|
|
(99,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(35,973
|
)
|
|
|
(139,960
|
)
|
|
|
(118,926
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
45,661
|
|
|
|
478,009
|
|
|
|
136,041
|
|
Repayments of long-term debt and capital leases
|
|
|
(37,503
|
)
|
|
|
(362,141
|
)
|
|
|
(38,925
|
)
|
Utilization of bank overdraft facility, net
|
|
|
3,818
|
|
|
|
|
|
|
|
|
|
Redemption of Series A preferred stock
|
|
|
|
|
|
|
(24,795
|
)
|
|
|
|
|
Purchase of treasury stock
|
|
|
(50
|
)
|
|
|
(46,453
|
)
|
|
|
|
|
Issuance of Series B preferred stock
|
|
|
|
|
|
|
73,297
|
|
|
|
|
|
Issuance of capital stock
|
|
|
|
|
|
|
89
|
|
|
|
64
|
|
Repayment of subscriptions receivable
|
|
|
|
|
|
|
386
|
|
|
|
443
|
|
Distributions
|
|
|
(18
|
)
|
|
|
(51
|
)
|
|
|
(36
|
)
|
Debt issuance costs
|
|
|
(716
|
)
|
|
|
(11,127
|
)
|
|
|
(3,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
11,192
|
|
|
|
107,214
|
|
|
|
94,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
354
|
|
|
|
(194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,019
|
|
|
|
287
|
|
|
|
(4,142
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
1,699
|
|
|
|
1,412
|
|
|
|
5,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
2,718
|
|
|
$
|
1,699
|
|
|
$
|
1,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
22,939
|
|
|
$
|
8,359
|
|
|
$
|
4,517
|
|
Cash paid for income taxes
|
|
$
|
67
|
|
|
$
|
92
|
|
|
$
|
327
|
|
See accompanying notes to consolidated financial statements.
F-44
CARDTRONICS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1)
|
Business and
Summary of Significant Accounting Policies
|
|
|
(a)
|
Description of
Business
|
Cardtronics, Inc., along with its wholly-owned subsidiaries
(collectively, the Company or
Cardtronics) owns and operates approximately 23,525
automated teller machines (ATM) in all
50 states and approximately 1,375 ATMs located throughout
the United Kingdom. Additionally, the company owns a majority
interest in an entity that operates approximately 350 ATMs
located throughout Mexico. The Company provides ATM management
and equipment-related services (typically under multi-year
contracts) to large, nationally-known retail merchants as well
as smaller retailers and operators of facilities such as
shopping malls and airports. Additionally, the Company operates
the largest surcharge-free ATM network within the United States
(based on number of participating ATMs) and works with financial
institutions to brand the Companys ATMs in order to
provide their banking customers with convenient, surcharge-free
ATM access.
|
|
(b)
|
Basis of
Presentation
|
The consolidated financial statements presented include the
accounts of Cardtronics, Inc. and its wholly- and majority-owned
subsidiaries, as well as the accounts of ATM Ventures LLC, a
limited liability company that, until its dissolution in 2006,
the Company controlled through a 50.0% ownership interest in
such entity. For 2005, the remaining 50.0% ownership interest
has been reflected as a minority interest in the accompanying
consolidated financial statements. All material intercompany
accounts and transactions have been eliminated in consolidation.
Additionally, our financial statements for prior periods include
certain reclassifications that were made to conform to the
current period presentation. Those reclassifications did not
impact our reported net (loss) income or stockholders
deficit. Furthermore, our 2006 financial results include a
$0.5 million pre-tax adjustment to reduce excess accretion
expense that was erroneously recorded in 2005. Reference is made
to Note 1(m) for additional details.
In addition, the Company presents Cost of ATM operating
revenues and Gross profit within its
consolidated financial statements exclusive of depreciation,
accretion, and amortization. A summary of the amounts excluded
from cost of ATM operating revenues and gross profit during the
years ended December 31, 2006, 2005, and 2004 is presented
below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Depreciation and accretion related to ATMs and ATM-related assets
|
|
$
|
17,190
|
|
|
$
|
11,639
|
|
|
$
|
5,875
|
|
Amortization
|
|
|
11,983
|
|
|
|
8,980
|
|
|
|
5,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation, accretion, and amortization excluded from
cost of ATM operating revenues and gross profit
|
|
$
|
29,173
|
|
|
$
|
20,619
|
|
|
$
|
11,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
Use of
Estimates in the Preparation of Financial
Statements
|
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period.
Significant items subject to such estimates include the carrying
amount of intangibles, goodwill, and valuation
F-45
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
allowances for receivables, inventories, and deferred income tax
assets. Actual results could differ from those assumed in the
Companys estimates.
|
|
(d)
|
Cash and Cash
Equivalents
|
For purposes of reporting financial condition and cash flows,
cash and cash equivalents include cash in bank and short-term
deposit sweep accounts.
We maintain cash on deposit with banks that is pledged for a
particular use or restricted to support a potential liability.
We classify these balances as restricted cash in current or
non-current assets on our consolidated balance sheet based on
when we expect this cash to be used. As of December 31,
2006 and 2005, we had approximately $0.9 million and
$4.2 million, respectively, of restricted cash in current
assets and $34,000 and $33,000, respectively, in other
non-current assets. Current restricted cash as of
December 31, 2006 and 2005 was comprised of approximately
$0.7 million and $1.1 million, respectively, in
amounts collected on behalf of, but not yet remitted to, certain
of the Companys merchant customers, and $0.2 million
and $3.1 million, respectively, in guarantees related to
certain notes issued in connection with the Bank Machine
acquisition (see Note 2). Non-current restricted
cash represents a certificate of deposit held at one of the
banks utilized to provide cash for the Companys ATMs.
|
|
(e)
|
ATM Cash
Management Program
|
The Company relies on agreements with Bank of America, N.A. and
Palm Desert National Bank (PDNB) to provide the cash
that it uses in its domestic ATMs in which the related merchants
do not provide their own cash. Additionally, the Company relies
on Alliance & Leicester Commercial Bank
(ALCB) in the United Kingdom and Bansi in Mexico to
provide it with its ATM cash needs. The Company pays a fee for
its usage of this cash based on the total amount of cash
outstanding at any given time, as well as fees related to the
bundling and preparation of such cash prior to it being loaded
in the ATMs. At all times during its use, the cash remains the
sole property of the cash providers, and the Company is unable
to and prohibited from obtaining access to such cash. Pursuant
to the Bank of America agreement, Bank of America must provide
360 days prior written notice to the Company to terminate
the agreement and remove its cash from the ATMs. Under the other
domestic agreement with PDNB and the U.K. agreement with ALCB,
both PDNB and ALCB have the right to demand the return of all or
any portion of their cash at any point in time upon the
occurrence of certain events beyond the Companys control.
In addition, under the agreement with Bansi, Bansi has the right
to terminate the agreement and demand the return of all or any
portion of their cash upon a breach of contract resulting from
our actions (or lack thereof) if such breach is not cured within
60 days. Based on the foregoing, such cash, and the related
obligations, are not reflected in the accompanying consolidated
financial statements. The amount of cash in the Companys
ATMs was approximately $536.0 million and
$473.6 million as of December 31, 2006 and 2005,
respectively.
Accounts receivable are primarily comprised of amounts due from
the Companys clearing and settlement banks for ATM
transaction revenues earned on transactions processed during the
month ending on the balance sheet date. Trade accounts
receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the
Companys best estimate of the amount of probable credit
losses in the Companys existing accounts receivable. The
Company reviews its allowance for doubtful accounts monthly and
F-46
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
determines the allowance based on an analysis of its past due
accounts. All balances over 90 days past due are reviewed
individually for collectibility. Account balances are charged
off against the allowance after all means of collection have
been exhausted and the potential for recovery is considered
remote. Amounts charged to bad debt expense were nominal during
each of the years ended December 31, 2006, 2005, and 2004.
Notes receivable relate to ATM financing arrangements with terms
that typically exceed one year. At the beginning of 2002, the
Company discontinued financing the sale of ATMs through the
notes receivable program for periods greater than one year.
However, the Company will still, in limited circumstances,
finance the sale of ATMs for periods less than one year. Such
notes typically bear interest at an implicit rate ranging from
8.0% to 10.0% that is recognized over the life of the note. As
of December 31, 2006 and 2005, the Company had
$0.2 million and $0.3 million, respectively, of total
notes receivable, net of allowances. The amount outstanding as
of December 31, 2006, is due in 2007 and included in
accounts and notes receivable in the accompanying consolidated
balance sheet. As of December 31, 2005, approximately
$0.2 million of the outstanding notes were included in
accounts and notes receivable and the remaining
$0.1 million were included in prepaid expenses and other
non-current assets. Amounts charged to bad debt expense were
nominal during each of the years ended December 31, 2006,
2005, and 2004.
Inventory consists principally of used ATMs, ATM spare parts,
and ATM supplies and is stated at the lower of cost or market.
Cost is determined using the average cost method. The following
is a breakdown of the Companys primary inventory
components as of December 31, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
ATMs
|
|
$
|
1,612
|
|
|
$
|
1,447
|
|
ATM parts and supplies
|
|
|
2,832
|
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,444
|
|
|
$
|
2,747
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Property and
Equipment, net
|
Property and equipment are stated at cost, and depreciation is
calculated using the straight-line method over estimated useful
lives ranging from three to seven years. Leasehold improvements
and property acquired under capital leases are amortized over
the useful life of the asset or the lease term, whichever is
shorter. The cost of property and equipment held under capital
leases is equal to the lower of the net present value of the
minimum lease payments or the fair value of the leased property
at the inception of the lease. Also included in property and
equipment are new ATMs the Company has acquired for future
installation. Such ATMs are held as deployments in
process and are not depreciated until actually installed.
Depreciation expense for property and equipment for the years
ended December 31, 2006, 2005, and 2004 was
$18.3 million, $11.9 million, and $6.5 million,
respectively. See Note 1(m) regarding asset
retirement obligations associated with the Companys ATMs.
F-47
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Maintenance on the Companys ATMs is typically performed by
third parties and is incurred as a fixed fee per month per ATM.
Accordingly, such amounts are expensed as incurred. In the
United Kingdom, maintenance is performed by in-house technicians.
|
|
(j)
|
Goodwill and
Other Intangible Assets
|
The Companys intangible assets include merchant
contracts/relationships acquired in connection with acquisitions
of ATM assets (i.e., the right to receive future cash
flows related to ATM transactions occurring at these merchant
locations), exclusive license agreements (i.e., the right
to be the exclusive ATM service provider, at specific locations,
for the time period under contract with a merchant customer),
non-compete agreements, deferred financing costs relating to the
Companys credit agreements (Note 12), and the
Bank Machine and Allpoint trade names acquired in May 2005 and
December 2005, respectively. Additionally, the Company has
goodwill related to the acquisitions of E*TRADE Access, Bank
Machine, ATM National, and Cardtronics Mexico.
The estimated fair value of the merchant contracts/relationships
within each acquired portfolio is determined based on the
estimated net cash flows and useful lives of the underlying
contracts/relationships, including expected renewals. The
merchant contracts/relationships comprising each acquired
portfolio are typically homogenous in nature with respect to the
underlying contractual terms and conditions. Accordingly, the
Company pools such acquired merchant contracts/relationships
into a single intangible asset, by acquired portfolio, for
purposes of computing the related amortization expense. The
Company amortizes such intangible assets on a straight-line
basis over the estimated useful lives of the portfolios to which
the assets relate. Because the net cash flows associated with
the Companys acquired merchant contracts/relationships
have historically increased subsequent to the acquisition date,
the use of a straight-line method of amortization effectively
results in an accelerated amortization schedule. As such, the
straight-line method of amortization most closely approximates
the pattern in which the economic benefits of the underlying
assets are expected to be realized. The estimated useful life of
each portfolio is determined based on the weighted-average lives
of the expected cash flows associated with the underlying
merchant contracts/relationships comprising the portfolio, and
takes into consideration expected renewal rates and the terms
and significance of the underlying contracts/relationships
themselves. If, subsequent to the acquisition date,
circumstances indicate that a shorter estimated useful life is
warranted for an acquired portfolio as a result of changes in
the expected future cash flows associated with the individual
contracts/relationships comprising that portfolio, then that
portfolios remaining estimated useful life and related
amortization expense are adjusted accordingly on a prospective
basis.
Goodwill and the acquired Bank Machine and Allpoint trade names
are not amortized, but instead are periodically tested for
impairment, at least annually, and whenever an event occurs that
indicates that an impairment may have occurred. See
Note 1(k) below for additional information on our
impairment testing of long-lived assets and goodwill.
|
|
(k)
|
Impairment of
Long-Lived Assets and Goodwill
|
The Company places significant value on the installed ATMs that
it owns and manages in merchant locations and the related
acquired merchant contracts/relationships. In accordance with
SFAS No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets, long-lived assets, such as property
and equipment and purchased contract intangibles subject to
amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that
F-48
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
the carrying amount of such assets may not be recoverable. The
Company tests its acquired merchant contract/relationship
intangible assets for impairment, along with the related ATMs,
on an individual contract/relationship basis for the
Companys significant acquired contracts/relationships, and
on a pooled or portfolio basis (by acquisition) for all other
acquired contracts/relationships. In determining whether a
particular merchant contract/relationship is significant enough
to warrant a separate identifiable intangible asset, the Company
analyzes a number of relevant factors, including
(i) estimates of the historical cash flows generated by
such contract/relationship prior to its acquisition,
(ii) estimates regarding the Companys 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
branding arrangements, and (iii) estimates regarding the
Companys 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, the Company evaluates the recoverability of the
intangible asset, and the related ATMs, by measuring the related
carrying amounts against the estimated undiscounted future cash
flows associated with the related contract or portfolio of
contracts. Should the sum of the expected future net cash flows
be less than the carrying values of the tangible and intangible
assets being evaluated, an impairment loss would be recognized.
The impairment loss would be calculated as the amount by which
the carrying values of the ATMs and intangible assets exceeded
the calculated fair value. The Company recorded approximately
$2.8 million and $1.2 million in additional
amortization expense during the years ended December 31,
2006 and 2005, respectively, related to the impairments of
certain previously acquired merchant contract/relationship
intangible assets associated with our U.S. reporting
segment.
As of December 31, 2006, the Company had
$169.6 million in goodwill reflected in its consolidated
balance sheet, with such amount being comprised of
$82.9 million from the E*TRADE Access acquisition,
$82.2 million from the Bank Machine acquisition,
$3.8 million from the ATM National acquisition, and
$0.7 million from the Cardtronics Mexico acquisition.
Additionally, the Company had approximately $4.1 million of
indefinite lived intangible assets as of December 31, 2006,
related to the acquired Bank Machine and Allpoint (via the ATM
National, Inc. acquisition) trade names. In accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets, the Company reviews the carrying amount of its
goodwill and indefinite lived intangible assets for impairment
at least annually, and more frequently if conditions warrant.
Pursuant to SFAS No. 142, goodwill and indefinite
lived intangible assets should be tested for impairment at the
reporting unit level, which in the Companys case involves
four separate reporting units (i) the
Companys domestic reporting segment; (ii) the
acquired Bank Machine operations; iii) the acquired CCS
Mexico (subsequently renamed to Cardtronics Mexico) operations;
and (iv) the acquired ATM National operations. In the case
of the goodwill balance resulting from the E*TRADE Access
acquisition, the carrying amount of the net assets associated
with Companys United States reporting segment as of
December 31, 2006 was compared to the estimated fair value
of such segment as of that same date. With respect to the
F-49
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Bank Machine goodwill and indefinite lived intangible asset
balance, the carrying amount of the Companys United
Kingdom segment as of December 31, 2006, was compared to
the estimated fair value of such segment as of that same date.
With respect to the Cardtronics Mexico goodwill balance, the
carrying amount of the net assets associated with the
Companys Mexico segment as of December 31, 2006, was
compared to the estimated fair value of such segment as of that
same date. Finally, with respect to the ATM National goodwill
and indefinite lived intangible asset balance, the carrying
amount of the net assets associated with the ATM National
reporting unit as of December 31, 2006, was compared to the
estimated fair value of such reporting unit as of that same
date. Based on the results of those tests, the Company
determined that no goodwill or other indefinite lived intangible
asset impairments existed as of December 31, 2006.
The Company accounts for income taxes pursuant to the provisions
of SFAS No. 109, Accounting for Income Taxes.
Provisions for income taxes are based on taxes payable or
refundable for the current year and deferred taxes, which are
based on temporary differences between the amount of taxable
income and income before provision for income taxes and between
the tax basis of assets and liabilities and their reported
amounts in the financial statements. Deferred tax assets and
liabilities are included in the consolidated financial
statements at current income tax rates. As changes in tax laws
or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes. For additional
information on accounting for income taxes, see
Note 1(x), New Accounting Pronouncements Issued but Not
Yet AdoptedAccounting for Uncertainty in Income Taxes.
|
|
(m)
|
Asset
Retirement Obligations
|
The Company accounts for its asset retirement obligations under
SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the Company to
estimate the fair value of future retirement costs associated
with its ATMs. 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, the Company recognizes a gain or loss for any
difference between the settlement amount and the liability
recorded.
Asset retirement obligations consist primarily of deinstallation
costs of the ATM and the costs to restore the ATM site to its
original condition. The Company is contractually required to
perform this deinstall and restoration work at the termination
of the ATM operating agreement. In accordance with
SFAS No. 143, the Company recognizes the fair value of
a liability for an asset retirement obligation and capitalizes
that cost as part of the cost basis of the related asset. The
related assets are being depreciated on a straight-line basis
over seven years.
F-50
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table describes changes to the Companys
asset retirement obligation liability for the years ended
December 31, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Asset retirement obligation as of beginning of period
|
|
$
|
8,339
|
|
|
$
|
5,305
|
|
Additional ATMs
|
|
|
2,291
|
|
|
|
3,038
|
|
Accretion expense
|
|
|
279
|
|
|
|
1,024
|
|
Payments
|
|
|
(1,079
|
)
|
|
|
(958
|
)
|
Foreign currency translation adjustments
|
|
|
159
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation as of end of period
|
|
$
|
9,989
|
|
|
$
|
8,339
|
|
|
|
|
|
|
|
|
|
|
The 2006 accretion expense amount reflected above includes a
$0.5 million pre-tax adjustment relating to the reversal of
excess accretion expense that was erroneously recorded in 2005.
The Company reviewed this adjustment and determined that the
impact of recording such out-of-period adjustment in 2006 (as
opposed to reducing the reported 2005 depreciation and accretion
expense amount) was immaterial to both reporting periods
pursuant to the provisions contained in the SECs Staff
Accounting Bulletin (SAB) No. 99,
Materiality, and SAB No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements. In
forming this opinion, management considered the nature of the
adjustment (cash versus non-cash) and the relative size of the
adjustment to certain financial statement line items, including
revenues, gross profits, and pre-tax income and loss amounts for
each period, including the interim periods contained within both
years. Furthermore, management considered the impact of
recording this adjustment in 2006 on the Companys
previously reported earnings and losses for such periods and
concluded that such adjustment did not impact the trend of the
Companys previously reported earnings and losses.
Substantially all of the Companys revenues are generated
from ATM operating and transaction-based fees, which primarily
include surcharge fees, interchange fees, branding, and other
fees, including maintenance fees. Such amounts are reflected as
ATM operating revenues in the accompanying
consolidated statements of operations. Surcharge and interchange
fees are recognized daily as the underlying ATM transactions are
processed. Branding fees are generated by the Companys
bank branding agreements and by its surcharge-free ATM networks.
Under the Companys bank branding agreements, banks pay a
fixed monthly fee per ATM to the Company to put their brand name
on selected ATMs within the Companys ATM portfolio. In
return for such fees, the banks customers can use those
branded ATMs without paying a surcharge fee. Pursuant to the
SECs SAB Topic 13, Revenue Recognition, the monthly
per ATM branding fees, which are subject to escalation clauses
within the agreements, are recognized as revenues on a
straight-line basis over the term of the agreement. In addition
to the monthly branding fees, the Company also receives a
one-time
set-up fee
per ATM. This
set-up fee
is separate from the recurring, monthly branding fees and is
meant to compensate Cardtronics for the burden incurred related
to the initial
set-up of a
branded ATM versus the on-going monthly services provided for
the actual branding. Pursuant to the guidance in Emerging Issues
Task Force (EITF) Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables, and
SAB No. 104, Revenue Recognition, the Company
has deferred these
set-up fees
(as well as the corresponding costs associated with the initial
set-up) and
is recognizing such amounts as revenue (and expense) over the
terms of the underlying bank branding
F-51
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
agreements. With respect to the Companys surcharge-free
networks, the Company allows cardholders of financial
institutions that participate in the network to utilize the
Companys ATMs on a surcharge-free basis. In return, the
participating financial institutions typically pay a fixed fee
per month per cardholder to the Company. Such network branding
fees are recognized as branding revenues on a monthly basis as
earned. Finally, with respect to maintenance services, the
Company typically charges a fixed fee per month per ATM to its
customers and outsources the fulfillment of those maintenance
services to a third-party service provider for a corresponding
fixed fee per month per ATM. Accordingly, the Company recognizes
such service agreement revenues and the related expenses on a
monthly basis, as earned.
The Company also generates revenues from the sale of ATMs to
merchants and certain equipment resellers. Such amounts are
reflected as ATM product sales and other revenues in
the accompanying consolidated statements of operations. Revenues
related to the sale of ATMs to merchants are recognized when the
equipment is delivered to the customer and the Company has
completed all required installation and
set-up
procedures. With respect to the sale of ATMs to associate
value-added resellers (VARs), the Company recognizes and
invoices revenues related to such sales when the equipment is
shipped from the manufacturer to the VAR. The Company typically
extends
30-day terms
and receives payment directly from the VAR irrespective of the
ultimate sale to a third party.
In connection with the Companys merchant-owned
ATM operating/processing arrangements, the Company typically
pays the surcharge fees that it earns to the merchant as fees
for providing, placing and maintaining the ATM unit. Pursuant to
the guidance of EITF Issue
No. 01-9,
Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products), the
Company has recorded such payments as a cost of the associated
revenues. In exchange for this payment, the Company receives
access to the merchants customers and the ability to earn
the surcharge and interchange fees from transactions that such
customers conduct from using the ATM. The Company is able to
reasonably estimate the fair value of this benefit based on the
typical surcharge rates charged for transactions on all of its
ATMs, including those not subject to these arrangements.
Further, the Company recognizes all of its surcharge and
interchange fees gross of any of the payments made to the
various merchants and retail establishments where the ATM units
are housed. Pursuant to the guidance of EITF Issue
99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent, the Company acts as the principal and is the primary
obligor in the ATM transactions, provides the processing for the
ATM transactions, and has the risks and rewards of ownership,
including the risk of loss for collection. Accordingly, the
Company records revenues for all amounts earned from the
underlying ATM transactions, and records the related merchant
commissions as a cost of revenues.
In connection with certain bank branding agreements, the Company
is required to rebate a portion of the interchange fees it
receives above certain thresholds to the branding financial
institutions, as established in the underlying branding
agreements. In contrast to the gross presentation of surcharge
and interchange fees remitted to merchants, the Company
recognizes all of its interchange fees net of any such rebates.
Pursuant to the guidance of EITF
No. 01-9
(as referenced above), while the Company receives access to the
branding financial institutions customers and the ability
to earn interchange fees related to such transactions conducted
by those customers, the Company is unable to reasonably estimate
the fair value of this benefit. Thus, the Company recognizes
such payments made to the branding financial institution as a
reduction of revenues versus a cost of the associated revenues.
F-52
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
(o)
|
Stock-Based
Compensation
|
Effective January 1, 2006, the Company adopted
SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123R).
SFAS No. 123R eliminates the intrinsic value method of
accounting for stock-based compensation, as previously allowed
under Accounting Principles Board Opinion No. 25 (APB
No. 25), and requires companies to recognize the cost
of employee services received in exchange for awards of equity
instruments based on the fair value of such awards on their
grant date (with limited exceptions). Because the Company
historically utilized the minimum value method of measuring
equity share option values for pro forma disclosure purposes
under SFAS No. 123, Accounting for Stock-based
Compensation, it adopted the provisions of
SFAS No. 123R using the prospective transition method.
Accordingly, the Company will recognize compensation expense for
the fair value of all new awards that are granted and existing
awards that are modified subsequent to December 31, 2005.
For those awards issued and still outstanding prior to
December 31, 2005, the Company will continue to account for
such awards pursuant to APB Opinion No. 25 and its related
interpretive guidance. Accordingly, the Companys financial
statements for all periods prior to January 1, 2006, do not
reflect any adjustments resulting from the adoption of
SFAS No. 123R, and the adoption did not result in the
recording of a cumulative effect of a change in accounting
principle.
Had compensation cost for the Companys plan been
determined based on the fair value method at the grant dates, as
specified in SFAS No. 123, the Companys net
earnings would have been reduced to the following pro forma
amounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Net (loss) income, as reported
|
|
$
|
(2,418
|
)
|
|
$
|
5,805
|
|
Add: Stock-based employee compensation expense included in
reported net income, net of tax
|
|
|
1,492
|
|
|
|
589
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
tax
|
|
|
(1,694
|
)
|
|
|
(637
|
)
|
|
|
|
|
|
|
|
|
|
Net (loss) income, as adjusted
|
|
|
(2,620
|
)
|
|
|
5,757
|
|
Preferred stock dividends and accretion expense
|
|
|
1,395
|
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders, as adjusted
|
|
$
|
(4,015
|
)
|
|
$
|
3,445
|
|
|
|
|
|
|
|
|
|
|
Additional information regarding the Companys stock option
plan is included in Note 3.
|
|
(p)
|
Derivative
Instruments
|
The Company utilizes derivative financial instruments to hedge
its exposure to changing interest rates related to the
Companys ATM cash management activities. The Company does
not enter into derivative transactions for speculative or
trading purposes.
All derivatives are recognized on the consolidated balance sheet
at fair value. As of December 31, 2006, all of the
Companys derivative transactions were considered to be
cash flow hedges in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities.
Accordingly, changes in the fair values of such derivatives
have been reflected in the accumulated other comprehensive
income (loss) account in the accompanying consolidated balance
sheet. See Note 15 for more details on the
Companys derivative financial instrument transactions.
F-53
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
(q)
|
Fair Value of
Financial Instruments
|
SFAS No. 107, Disclosures About Fair Value of
Financial Instruments, requires the disclosure of the
estimated fair value of the Companys financial
instruments. The fair value of a financial instrument is the
amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or
liquidation sale. SFAS No. 107 does not require the
disclosure of the fair value of lease financing arrangements and
non-financial instruments, including intangible assets such as
goodwill and the Companys merchant contracts/relationships.
The carrying amount of the Companys cash and cash
equivalents and other current assets and liabilities
approximates fair value due to the relatively short maturities
of these instruments. The carrying amount of the Companys
interest rate swap agreements (see Note 15)
represents the fair value of such agreements and is based on
third-party quotes for similar instruments with the same terms
and conditions. The carrying amount of the long-term debt
balance related to borrowings under the Companys revolving
credit facility approximates fair value due to the fact that
such borrowings are subject to floating market interest rates.
As of December 31, 2006, the fair value of the
Companys senior subordinated notes (see
Note 12) totaled $209.0 million and the fair
value of the Companys available-for-sale securities
totaled $4.2 million. The fair values of these financial
instruments were based on the quoted market price for such Notes
and securities as of year end.
|
|
(r)
|
Foreign
Currency Translation
|
As a result of the Bank Machine acquisition in May 2005 and the
Cardtronics Mexico acquisition in February 2006, the Company is
exposed to foreign currency translation risk. The functional
currency for the acquired Bank Machine and Cardtronics Mexico
operations are the British Pound and the Mexican Peso,
respectively. Accordingly, results of operations of our U.K. and
Mexico subsidiaries are translated into U.S. dollars using
average exchange rates in effect during the periods in which
those results are generated. Furthermore, the Companys
foreign operations assets and liabilities are translated
into U.S. dollars using the exchange rate in effect as of
each balance sheet reporting date. The resulting translation
adjustments, which resulted in a gain of $12.2 million and
a loss of $5.5 million for the years ended
December 31, 2006 and 2005, respectively, have been
included in accumulated other comprehensive income (loss) in the
accompanying consolidated balance sheets.
The Company currently believes that the unremitted earnings of
its United Kingdom and Mexico subsidiaries will be reinvested in
the corresponding country of origin for an indefinite period of
time. Accordingly, no deferred taxes have been provided for on
the differences between the Companys book basis and
underlying tax basis in those subsidiaries or on the foreign
currency translation adjustment amounts.
|
|
(s)
|
Comprehensive
Income (Loss)
|
SFAS No. 130, Reporting Comprehensive Income,
establishes standards for reporting comprehensive income (loss)
and its components in the financial statements. Accumulated
other comprehensive income (loss) is displayed as a separate
component of stockholders deficit in the accompanying
consolidated balance sheets and current period activity is
reflected in the accompanying consolidated statements of
comprehensive income (loss). The Companys comprehensive
income (loss) is composed of (i) net (loss) income;
(ii) foreign currency translation adjustments;
(iii) unrealized gains associated with the Companys
interest rate
F-54
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
hedging activities, net of tax; and (iv) unrealized gains
on the Companys held-for-sale securities, net of tax.
The following table sets forth the components of accumulated
other comprehensive income (loss), net of taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Foreign currency translation adjustments
|
|
$
|
6,711
|
|
|
$
|
(5,491
|
)
|
Unrealized gains on interest rate hedges
|
|
|
4,449
|
|
|
|
5,145
|
|
Unrealized gains on available-for-sale securities
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
$
|
11,658
|
|
|
$
|
(346
|
)
|
|
|
|
|
|
|
|
|
|
Treasury stock is recorded at cost and carried as a component of
stockholders deficit until retired or reissued.
Advertising costs are expensed as incurred and totaled
$0.8 million, $0.9 million, and $0.5 million
during the years ended December 31, 2006, 2005, and 2004,
respectively.
|
|
(v)
|
Working
Capital Deficit
|
The Companys surcharge and interchange revenues are
typically collected in cash on a daily basis or within a very
short period of time subsequent to the end of each month.
However, the Company typically pays its vendors, including
certain of its merchant customers, within
20-30 days
subsequent to the end of each month. Accordingly, the Company
will typically utilize the excess cash flow generated from such
timing differences to fund its capital expenditure needs or to
repay amounts outstanding under its revolving line of credit
(which is reflected as a long-term liability in the accompanying
consolidated balance sheets). Accordingly, this scenario will
typically cause the Companys balance sheet to reflect a
working capital deficit position. The Company considers such a
presentation to be a normal part of its ongoing operations.
|
|
(w)
|
Accounting
Changes and Errors Corrections
|
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections, a replacement of
APB Opinion No. 20 and FASB Statement No. 3.
SFAS No. 154 provides guidance on the accounting for
and reporting of accounting changes and error corrections. It
establishes, unless impracticable, retrospective application as
the required method for reporting a change in accounting
principle in the absence of explicit transition requirements
specific to the newly adopted accounting principle.
Additionally, the correction of an error in previously issued
financial statements is not an accounting change but rather must
be reported as a prior-period adjustment by restating previously
issued financial statements. The Company adopted the provisions
of SFAS No. 154 on January 1, 2006. This adoption
did not have a material impact on the Companys
consolidated financial statements for the year ended
December 31, 2006.
Additionally, in September 2006, the SEC released
SAB No. 108, Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year
Financial Statements. SAB No. 108 provides
guidance on how to evaluate the impact of financial statement
F-55
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
misstatements from prior periods that have been identified in
the current year. The provisions of SAB No. 108 are
effective for fiscal years ending on or after November 15,
2006. The Companys adoption of SAB No. 108 in
the fourth quarter of 2006 did not have a material impact on its
financial statements.
|
|
(x)
|
New Accounting
Pronouncements Issued but Not Yet Adopted
|
Accounting for Uncertainty in Income Taxes. In
June 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation (FIN)
No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109. This
interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial
statements in accordance with SFAS No. 109,
Accounting for Income Taxes. The interpretation
prescribes a recognition threshold and measurement attribute for
a tax position taken or expected to be taken in a tax return and
also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods,
disclosure, and transition. The provisions of FIN 48 are
effective for fiscal years beginning after December 31,
2006. Accordingly, the Company will apply the provisions of
FIN 48 to all tax positions upon initial adoption in the
first quarter of 2007, with any cumulative effect adjustment to
be recognized as an adjustment to retained earnings. Due to the
Companys significant net operating loss carryforward
position, the Company does not believe that the adoption of
FIN 48 will have a material impact on its financial
condition or results of operations.
Fair Value Measurements. In September 2006,
the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS No. 157), which
provides guidance on measuring the fair value of assets and
liabilities in the financial statements. The provisions of
SFAS No. 157 are effective for fiscal years beginning
after November 15, 2007, and interim periods within those
fiscal years. The Company is currently evaluating the impact, if
any, this statement will have on its financial statements.
Fair Value Option. In February 2007, the FASB
issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities
(SFAS No. 159), which provides allows
companies the option to measure certain financial instruments
and other items at fair value. The provisions of
SFAS No. 159 are effective as of the beginning of
fiscal years beginning after November 15, 2007. The Company
is currently evaluating the impact, if any, this statement will
have on its financial statements.
The Company reports net (loss) income per share in accordance
with SFAS No. 128, Earnings per Share. In
accordance with SFAS No. 128, the Company excludes
potentially dilutive securities in its calculation of diluted
earnings per share (as well as their related income statement
impacts) when their impact on net (loss) income available to
common stockholders is anti-dilutive. Additionally, for the
years ended December 31, 2006 and 2005, the Company
incurred net losses and, accordingly, excluded all potentially
dilutive securities from the calculation of diluted earnings per
share as their impact on the net loss available to common
stockholders was anti-dilutive. Such anti-dilutive securities
included outstanding stock options and the Companys
Series B convertible preferred stock.
F-56
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table reconciles the components of the basic and
diluted earnings per share for the years ended December 31,
2006, 2005, and 2004 (in thousands, except share and per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net (loss) income
|
|
$
|
(531
|
)
|
|
$
|
(2,418
|
)
|
|
$
|
5,805
|
|
Preferred stock dividends and accretion
|
|
|
265
|
|
|
|
1,395
|
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(796
|
)
|
|
$
|
(3,813
|
)
|
|
$
|
3,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
1,749,328
|
|
|
|
1,766,419
|
|
|
|
2,238,801
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
115,255
|
|
Restricted stock
|
|
|
|
|
|
|
|
|
|
|
18,148
|
|
Series A redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
1,749,328
|
|
|
|
1,766,419
|
|
|
|
2,372,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.46
|
)
|
|
$
|
(2.16
|
)
|
|
$
|
1.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.46
|
)
|
|
$
|
(2.16
|
)
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to their anti-dilutive effect, the following potentially
dilutive securities have been excluded from the computation of
diluted net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Stock options
|
|
|
193,155
|
|
|
|
128,917
|
|
|
|
|
|
Restricted shares
|
|
|
11,835
|
|
|
|
19,802
|
|
|
|
|
|
Series B convertible preferred stock
|
|
|
929,789
|
|
|
|
818,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total potentially dilutive securities
|
|
|
1,134,779
|
|
|
|
966,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Share
and Per Share Data Unaudited
In September 2007, the Company filed a registration statement on
Form S-1
with the SEC relating to an initial public offering of shares of
its common stock. The Company filed a post effective amendment
to that registration statement in December 2007, in which
it disclosed its intent to offer a total of 12 million
shares of its common stock at an estimated price range of $10 to
$11 per share (after taking into account an anticipated 8.1758:1
stock split that will occur immediately prior to the offering).
The following pro forma share and per share information gives
effect to this stock split and the related conversion mechanics
applicable to the Series B Convertible Preferred Stock held
by TA Associates, assuming the offering occurs at $10.50 per
share.
F-57
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Pro forma weighted average common shares outstanding
basic
|
|
|
14,302,199
|
|
|
|
14,441,932
|
|
|
|
18,304,045
|
|
Pro forma effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
942,305
|
|
Restricted stock
|
|
|
|
|
|
|
|
|
|
|
148,374
|
|
Series A redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average common shares outstanding
diluted
|
|
|
14,302,199
|
|
|
|
14,441,932
|
|
|
|
19,394,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of
CCS Mexico
In February 2006, the Company acquired a 51.0% ownership stake
in CCS Mexico, an independent ATM operator located in Mexico,
for approximately $1.0 million in cash consideration and
the assumption of approximately $0.4 million in additional
liabilities. Additionally, the Company incurred approximately
$0.3 million in transaction costs associated with this
acquisition. CCS Mexico, which was renamed Cardtronics Mexico
upon the completion of the Companys investment, currently
operates approximately 350 surcharging ATMs in selected retail
locations throughout Mexico. With Mexico having recently
approved surcharging for off-premise ATMs, the Company
anticipates placing additional surcharging ATMs in other retail
establishments throughout Mexico as those opportunities arise.
The Company has allocated the total purchase consideration to
the assets acquired and liabilities assumed based on their
respective fair values as of the acquisition date. Such
allocation resulted in goodwill of approximately
$0.7 million. Such goodwill, which is not deductible for
tax purposes, has been assigned to a separate reporting unit
representing the acquired CCS Mexico operations. Additionally,
such allocation resulted in approximately $0.4 million in
identifiable intangible assets, including $0.3 million for
certain acquired customer contracts and $0.1 million
related to non-compete agreements entered into with the minority
interest shareholders of Cardtronics Mexico.
Because the Company owns a majority interest in and absorbs a
majority of the entitys losses or returns, Cardtronics
Mexico is reflected as a consolidated subsidiary in the
accompanying condensed consolidated financial statements, with
the remaining ownership interest not held by the Company being
reflected as a minority interest.
Acquisition of
Bank Machine (Acquisitions) Limited
On May 17, 2005, the Company purchased 100% of the
outstanding shares of Bank Machine (Acquisitions) Limited. Such
acquisition was made to provide the Company with an existing
platform from which it can expand its operations in the United
Kingdom and other European markets.
F-58
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The purchase price totaled approximately $95.0 million and
consisted of $92.0 million in cash and the issuance of
35,221 shares of the Companys Series B
Convertible Preferred Stock, which was valued by the Company at
approximately $3.0 million. Additionally, the Company
incurred approximately $2.2 million in transaction costs
associated with the acquisition.
Although the Bank Machine acquisition closed on May 17,
2005, the Company utilized May 1, 2005 as the effective
date of the acquisition for accounting purposes. Accordingly,
the accompanying consolidated financial statements of the
Company include Bank Machines results of operations for
the period subsequent to April 30, 2005. Additionally, such
results have been reduced by approximately $0.3 million,
with such amount representing the imputed interest costs
associated with the acquired Bank Machine operations for the
period from May 1, 2005 through the actual closing date of
May 17, 2005.
In connection with the acquisition, certain existing
shareholders of Bank Machine agreed to defer receipt of a
portion of their cash consideration proceeds in return for the
issuance of certain guaranteed notes payable from Cardtronics
Limited, the Companys wholly-owned subsidiary holding
company in the United Kingdom. As part of the guarantee
arrangement, the Company initially placed approximately
$3.1 million of the cash consideration paid as part of the
acquisition in a bank account to serve as collateral for the
guarantee. The notes mature in May 2008, but may be repaid in
part or in whole at any time at the option of each individual
note holder. Approximately $3.0 million of the notes were
redeemed on March 15, 2006. The remaining cash serving as
collateral as of December 31, 2006 has been reflected in
the Restricted cash, short-term line item in the
accompanying consolidated balance sheet. Additionally, the
remaining obligations, which we expect to be redeemed in 2007,
have been reflected in the Current portion of long-term
debt and notes payable line item in the accompanying
consolidated balance sheet. Interest expense on the notes
accrues quarterly at the same floating rate as that of the
interest income associated with the related restricted cash
account.
F-59
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed as of the acquisition
date (amounts in thousands). Pursuant to SFAS No. 141,
Business Combinations, the total purchase consideration
has been allocated to the assets acquired and liabilities
assumed, including identifiable intangible assets, based on
their respective fair values at the date of acquisition. Such
allocation resulted in approximately $77.3 million in
goodwill, which is not expected to be deductible for income tax
purposes. Such goodwill amount has been assigned to a reporting
unit comprised solely of the acquired Bank Machine operations.
|
|
|
|
|
Cash
|
|
$
|
3,400
|
|
Trade accounts receivable, net
|
|
|
407
|
|
Inventory
|
|
|
82
|
|
Other current assets
|
|
|
4,936
|
|
Property and equipment
|
|
|
12,590
|
|
Intangible assets subject to amortization (7 year
weighted-average life)
|
|
|
6,812
|
|
Intangible assets not subject to amortization
|
|
|
3,682
|
|
Goodwill
|
|
|
77,269
|
|
|
|
|
|
|
Total assets acquired
|
|
|
109,178
|
|
|
|
|
|
|
Accounts payable
|
|
|
(2,467
|
)
|
Accrued liabilities
|
|
|
(5,307
|
)
|
Current portion of notes payable
|
|
|
(3,232
|
)
|
Deferred income taxes, non-current
|
|
|
(1,926
|
)
|
Other long-term liabilities
|
|
|
(1,225
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(14,157
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
95,021
|
|
|
|
|
|
|
Above amounts were converted from Pound Sterling to
U.S. Dollars at $1.8410, which represents the exchange rate
in effect as of the date of the acquisition.
As indicated in the table above, approximately $6.8 million
was allocated to intangible assets subject to amortization,
which represents the estimated value associated with the
acquired merchant contracts/relationships associated with the
Bank Machine ATM portfolio. Such amount was determined by
utilizing a discounted cash flow approach, and is currently
being amortized on a straight-line basis over an estimated
useful life of seven years, in accordance with the
Companys existing policy. The $3.7 million allocated
to intangible assets not subject to amortization represents the
estimated value associated with the acquired Bank Machine trade
name, and was determined based on the relief from royalty
valuation approach.
The above purchase price allocation reflects a change made
during 2006 to record certain deferred tax items related to the
acquisition. Such change had the effect of increasing the
recorded goodwill balance by approximately $0.2 million.
Acquisition of
the E*TRADE Access, Inc. ATM Portfolio
On June 30, 2004, the Company acquired the ATM portfolio
owned by E*TRADE Access, Inc. for approximately
$106.9 million in cash. Such amount was funded through
borrowings under the Companys amended and restated term
loan and revolving line of credit agreement, as of such date.
F-60
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As a result of the acquisition, the Company more than doubled
the number of ATMs that it owns and operates, making it the
largest non-bank owner/operator of ATMs in the United States
based on total number of ATMs under management. In so doing, the
Company has been able to leverage its increased size and scale
to derive more favorable pricing terms and conditions from its
key third-party service providers. Additionally, the Company
also added a number of high-profile, nationally-recognized
retail establishments to its list of merchant customers as a
result of this transaction, thus further enhancing the value of
the Companys bank and network branding offerings.
The results of operations of the acquired E*TRADE ATM portfolio
have been included in the Companys consolidated statement
of operations for all periods subsequent to the June 30,
2004 acquisition date.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed as of the acquisition
date (amounts in thousands). The total purchase consideration
was allocated to the assets acquired and liabilities assumed,
including identifiable intangible assets, based on their
respective fair values at the date of acquisition. Such
allocation resulted in goodwill of approximately
$82.8 million, which has been assigned to a reporting unit
comprised of the Companys domestic reporting segment. Such
goodwill is also expected to be deductible for income tax
purposes over a period of 15 years.
|
|
|
|
|
Cash
|
|
$
|
8,137
|
|
Trade accounts receivable, net
|
|
|
574
|
|
Surcharge and interchange receivable
|
|
|
1,240
|
|
Inventory
|
|
|
395
|
|
Other current assets
|
|
|
319
|
|
Property and equipment
|
|
|
8,496
|
|
Intangible assets subject to amortization (10 year
weighted-average life)
|
|
|
23,954
|
|
Deferred income taxes
|
|
|
2,219
|
|
Goodwill
|
|
|
82,758
|
|
|
|
|
|
|
Total assets acquired
|
|
|
128,092
|
|
|
|
|
|
|
Accounts payable
|
|
|
(5,762
|
)
|
Accrued liabilities
|
|
|
(9,204
|
)
|
Other long-term liabilities
|
|
|
(6,258
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(21,224
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
106,868
|
|
|
|
|
|
|
The intangible assets subject to amortization are comprised
entirely of the acquired merchant contracts/relationships
associated with the E*TRADE ATM portfolio. The
$24.0 million value assigned to such
contracts/relationships was determined by utilizing a discounted
cash flow approach, and is being amortized on a straight-line
basis over an estimated useful life of 10 years, in
accordance with the Companys previously disclosed policy.
The above purchase price allocation reflects a change made
during 2006 to record certain deferred tax items related to the
acquisition. Such change had the effect of reducing the recorded
goodwill balance by approximately $2.2 million.
F-61
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Pro Forma
Results of Operations
The following table presents the unaudited pro forma combined
results of operations (in thousands) of the Company and the
acquired Bank Machine and E*TRADE Access ATM portfolios for the
years ended December 31, 2005 and 2004, after giving effect
to certain pro forma adjustments, including the effects of the
issuance of the Companys senior subordinated notes in
August 2005 (Note 12). Such unaudited pro forma
financial results do not reflect the impact of the smaller
acquisitions consummated by the Company in 2005. The unaudited
pro forma financial results assume that both acquisitions and
the debt issuance occurred on January 1, 2004, and are not
necessarily indicative of the actual results that would have
occurred had those transactions been consummated on such date.
Furthermore, such pro forma results are not necessarily
indicative of the future results to be expected for the
consolidated operations.
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Revenues
|
|
$
|
279,149
|
|
|
$
|
278,416
|
|
Income from continuing operations
|
|
|
21,083
|
|
|
|
23,470
|
|
Net (loss) income
|
|
|
(1,162
|
)
|
|
|
1,263
|
|
Other
Acquisitions
On March 1, 2005, the Company acquired a portfolio of ATMs
from BAS Communications, Inc. (BASC) for
approximately $8.2 million in cash. Such portfolio
consisted of approximately 475 ATMs located in independent
grocery stores in and around the New York metropolitan area and
the related contracts. The purchase price was allocated
$0.6 million to ATM equipment and $7.6 million to the
acquired merchant contracts/relationships. During the first
quarter of 2006, the Company recorded a $2.8 million
impairment of the intangible asset representing the acquired
merchant contract/relationships related to this portfolio. This
impairment was triggered by a reduction in the anticipated
future cash flows resulting from a higher than anticipated
attrition rate associated with this acquired portfolio. The
Company has subsequently shortened the anticipated life
associated with this portfolio to reflect the higher attrition
rate. In January 2007, the Company received approximately
$0.8 million in proceeds that were distributed from an
escrow account established upon the initial closing of this
acquisition. Such proceeds were meant to compensate the Company
for the aforementioned attrition issues encountered with the
BASC portfolio subsequent to the acquisition date. Such amount
will be utilized to reduce the remaining carrying value of the
intangible asset amount associated with this portfolio. As of
December 31, 2006 and 2005, such amount was reflected as a
component of the related BASC intangible asset balance in the
accompanying consolidated balance sheets.
On April 21, 2005, the Company acquired a portfolio of
approximately 330 ATMs and related contracts, primarily at BP
Amoco locations throughout the Midwest, for approximately
$9.0 million in cash. The purchase price was allocated
$0.2 million to ATM equipment and $8.8 million to the
acquired merchant contracts/relationships.
F-62
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
On December 21, 2005, the Company acquired all of the
outstanding shares of ATM National, Inc., the owner and operator
of a nationwide surcharge-free ATM network. The consideration
for such acquisition totaled $4.8 million, and was
comprised of $2.6 million in cash, 21,111 shares of
the Companys common stock, and the assumption of
approximately $0.4 million in additional liabilities. Such
consideration has been allocated to the assets acquired and
liabilities assumed, including identifiable intangible assets,
based on their respective fair values as of the acquisition
date. Such allocation resulted in goodwill of approximately
$3.7 million, which was assigned to a separate reporting
unit representing the acquired ATM National, Inc. operations.
Such goodwill is not expected to be deductible for income tax
purposes. The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed as of the
acquisition date (in thousands):
|
|
|
|
|
Cash
|
|
$
|
142
|
|
Trade accounts receivable, net
|
|
|
546
|
|
Other current assets
|
|
|
6
|
|
Property and equipment
|
|
|
14
|
|
Intangible assets subject to amortization (8 year
weighted-average life)
|
|
|
3,000
|
|
Intangible assets not subject to amortization
|
|
|
200
|
|
Other assets
|
|
|
11
|
|
Goodwill
|
|
|
3,684
|
|
|
|
|
|
|
Total assets acquired
|
|
|
7,603
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(1,710
|
)
|
Deferred income taxes
|
|
|
(1,113
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(2,823
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
4,780
|
|
|
|
|
|
|
As indicated in the above table, $3.0 million has been
allocated to intangible assets subject to amortization, which
represents the estimated value of the customer
contracts/relationships in place as of the date of the
acquisition. Such amount was determined by utilizing a
discounted cash flow approach, and is being amortized on a
straight-line basis over an estimated useful life of eight
years, consistent with the Companys previously disclosed
policy. The $0.2 million assigned to intangible assets not
subject to amortization represents the estimated value
associated with the acquired Allpoint surcharge-free network
tradename. Such amount was determined based on the relief from
royalty valuation approach.
|
|
(3)
|
Stock-based
Compensation
|
As noted in Note 1, the Company adopted
SFAS No. 123R effective January 1, 2006. Under
SFAS No. 123R, the Company records the grant date fair
value of share-based compensation arrangements, net of estimated
forfeitures, as compensation expense on a straight-line basis
over the underlying service periods of the related awards. Prior
to the adoption of SFAS No. 123R, the Company utilized
the intrinsic value method of accounting for stock-based
compensation awards in accordance with APB No. 25, which
generally resulted in no compensation expense for employee stock
options issued with an exercise price greater than or equal to
the fair value of the Companys common stock on the date of
grant. Furthermore, the Company historically utilized the
minimum value method of measuring equity share option values for
pro forma disclosure purposes under SFAS No. 123.
Accordingly, the Company adopted SFAS No. 123R on
January 1, 2006, utilizing the prospective application
method.
F-63
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Under the prospective application method, the fair value
approach outlined under SFAS No. 123R is applied only
to new awards granted subsequent to December 31, 2005, and
to existing awards only in the event that such awards are
modified, repurchased or cancelled subsequent to the
SFAS No. 123R adoption date. Accordingly, the
Companys financial statements for all periods prior to
January 1, 2006, do not reflect any adjustments resulting
from the adoption of SFAS No. 123R. Additionally, the
adoption of SFAS No. 123R did not result in the
recording of a cumulative effect of a change in accounting
principle.
The following table reflects the total stock-based compensation
expense amounts included in the accompanying condensed
consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cost of ATM operating revenues
|
|
$
|
51
|
|
|
$
|
172
|
|
|
$
|
|
|
Selling, general and administrative expenses
|
|
|
828
|
|
|
|
2,201
|
|
|
|
956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
879
|
|
|
$
|
2,373
|
|
|
$
|
956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based
Compensation Plan
In June 2001, the Companys Board of Directors approved the
Cardtronics Group, Inc. 2001 Stock Incentive Plan (the
2001 Plan). The 2001 Plan allows for the issuance of
equity-based awards in the form of non-qualified stock options
and stock appreciation rights, as determined at the sole
discretion of the compensation committee of the Companys
Board of Directors. As of December 31, 2006, only
non-qualified stock options had been issued under the 2001 Plan.
The persons eligible to receive awards under the 2001 Plan
include employees, directors, and consultants of the Company,
including its affiliates and subsidiaries. Under the 2001 Plan,
no award may be granted more than ten years after the
plans initial approval date. As of December 31, 2006,
the maximum number of shares of common stock that could be
issued under the 2001 Plan totaled 750,000 shares. The
Company currently has no other stock-based compensation plans in
place.
Stock Option
Grants
The Company has historically used the Black-Scholes valuation
model (and the minimum value provisions) to determine the fair
value of stock options granted for pro forma reporting purposes
under SFAS No. 123. The Companys outstanding
stock options generally vest annually over a four-year period
from the date of grant and expire 10 years after the date
of grant. There have been no stock option grants made under the
2001 Plan that are subject to performance-based vesting criteria.
F-64
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
A summary of the status of the Companys outstanding stock
options as of December 31, 2006, and changes during the
year ended December 31, 2006, is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Balance as of January 1, 2006
|
|
|
464,164
|
|
|
$
|
48.70
|
|
Granted
|
|
|
97,500
|
|
|
$
|
83.84
|
|
Exercised
|
|
|
(4,703
|
)
|
|
$
|
0.04
|
|
Forfeited
|
|
|
(47,500
|
)
|
|
$
|
82.16
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
509,461
|
|
|
$
|
52.76
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable as of December 31, 2006
|
|
|
279,211
|
|
|
$
|
32.01
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, the remaining weighted average
contractual life for options outstanding and exercisable was
6.7 years and 5.8 years, respectively. The aggregate
intrinsic value of options outstanding and exercisable at
December 31, 2006, was $19.5 million and
$16.5 million, respectively. The intrinsic value of options
exercised during the year ended December 31, 2006, was
approximately $0.4 million, which resulted in a tax benefit
to the Company of approximately $0.2 million. However,
because the Company is currently in a net operating loss
position, such benefit has not been reflected in the
accompanying consolidated financial statements, as required by
SFAS No. 123R.
As indicated in the table above, the Companys Board of
Directors granted an additional 97,500 non-qualified stock
options to certain employees during the year ended
December 31, 2006. Such options were granted with an
exercise price of $83.84 per share, which was equal to the
estimated fair market value of the Companys common equity
as of the date of grant, and vest ratably over a four-year
service period with a
10-year
contractual term.
Fair Value
Assumptions
In accordance with SFAS No. 123R, the Company
estimates the fair value of its options by utilizing the
BlackScholes option pricing model. Such model requires the
input of certain subjective assumptions, including the expected
life of the options, a risk-free interest rate, a dividend rate,
and the future volatility of the Companys common equity.
Additional information with respect to the fair value of the
options issued during 2006 is as follows:
|
|
|
Weighted average estimated fair value per stock option granted
|
|
$33.68
|
Valuation assumptions:
|
|
|
Expected option term (years)
|
|
6.25
|
Expected volatility
|
|
34.50% - 35.90%
|
Expected dividend yield
|
|
0.00%
|
Risk-free interest rate
|
|
4.74% - 4.85%
|
The expected option term of 6.25 years was determined based
on the simplified method outlined in SAB No. 107, as
issued by the SEC. Such method is based on the vesting period
and the contractual term for each grant and is calculated by
taking the average of the expiration date and the vesting period
for each vesting tranche. In the future, as information
regarding post vesting termination becomes more available, the
Company will change this method of deriving the expected term.
Such a change could impact the fair value of options granted in
the future. Furthermore, the Company expects to refine the
method of deriving the
F-65
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
expected term by no later than January 1, 2008, as required
by SAB No. 107. The estimated forfeiture rates
utilized by the Company are based on the Companys
historical option forfeiture rates and represent the
Companys best estimate of future forfeiture rates. In
future periods, the Company will monitor the level of actual
forfeitures to determine if such estimate should be modified
prospectively, as well as adjusting the compensation expense
previously recorded.
The Companys common stock is not publicly-traded;
therefore, the expected volatility factors utilized were
determined based on historical volatility rates obtained for
certain companies with publicly-traded equity that operate in
the same or related businesses as that of the Company. The
volatility factors utilized represent the simple average of the
historical daily volatility rates obtained for each company
within this designated peer group over multiple periods of time,
up to and including a period of time commensurate with the
expected option term discussed above. The Company utilized this
peer group approach, as the historical transactions involving
the Companys private equity have been very limited and
infrequent in nature. The Company believes that the historical
peer group volatility rates utilized above are reasonable
estimates of the Companys expected future volatility.
The expected dividend yield was assumed to be zero as the
Company has not historically paid, and does not anticipate
paying, dividends with respect to its common equity. The
risk-free interest rates reflect the rates in effect as of the
grant dates for U.S. treasury securities with a term
similar to that of the expected option term referenced above.
Non-vested
Stock Options
A summary of the status of the Companys non-vested stock
options as of December 31, 2006, and changes during the
year ended December 31, 2006, is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
Shares Under
|
|
|
Average
|
|
|
|
Outstanding
|
|
|
Grant Date
|
|
|
|
Options
|
|
|
Fair Value
|
|
|
Non-vested options as of January 1, 2006
|
|
|
270,562
|
|
|
$
|
6.69
|
|
Granted
|
|
|
97,500
|
|
|
$
|
33.68
|
|
Vested
|
|
|
(92,812
|
)
|
|
$
|
6.13
|
|
Forfeited
|
|
|
(45,000
|
)
|
|
$
|
8.16
|
|
|
|
|
|
|
|
|
|
|
Non-vested options as of December 31, 2006
|
|
|
230,250
|
|
|
$
|
18.06
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, there was $2.5 million of
total unrecognized compensation cost related to non-vested
share-based compensation arrangements granted under the
Companys stock option plan. That cost is expected to be
recognized on a straight-line basis over a remaining
weighted-average vesting period of approximately 3.2 years.
The total fair value of options vested during the year ended
December 31, 2006, was $0.6 million. Compensation
expense recognized related to stock options totaled
approximately $0.6 million for the year ended
December 31, 2006. Additionally, the Company recognized
approximately $1.8 million of stock option-based
compensation expense in 2005 related to the repurchase of shares
underlying certain employee stock options in connection with the
Companys series B preferred stock financing
transaction.
Restricted
Stock
Pursuant to a restricted stock agreement dated January 20,
2003, the Company sold the President and Chief Executive Officer
of the Company 80,000 shares of common stock in
F-66
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
exchange for a promissory note in the amount of $940,800
(Exchange Proceeds). Such shares vest ratably over a
four-year basis on each anniversary of the original grant date.
The underlying restricted stock agreement permitted the Company
to repurchase a portion of such shares prior to January 20,
2007, in certain circumstances. The agreement also contained a
provision allowing the shares to be put to the
Company in an amount sufficient to retire the entire unpaid
principal balance of the promissory note plus accrued interest.
On February 4, 2004, the Company amended the restricted
stock agreement to remove such put right. As a
result of this amendment, the Company determined that it would
need to recognize approximately $3.2 million in
compensation expense based on the fair value of the shares at
the date of the amendment. This expense is being recognized on a
graded-basis over the four-year vesting period associated with
these restricted shares. Additionally, in connection with such
amendment, the Company paid a $1.8 million bonus to its
Chief Executive Officer as reimbursement of the tax liability
associated with such grant.
As of January 1, 2006, the number of non-vested shares for
the aforementioned restricted stock grant totaled 40,000, and
the remaining unrecognized compensation cost to be recognized on
a graded-basis was approximately $227,000. Compensation expense
associated with this restricted stock grant totaled
approximately $0.2 million, $0.5 million, and
$0.9 million for the years ended December 31, 2006,
2005, and 2004, respectively. No additional restricted shares
were granted or forfeited during these periods. During the year
ended December 31, 2006, an additional 20,000 shares
of the restricted stock grant vested. These vested shares had a
total fair value of approximately $0.8 million (net of the
Exchange Proceeds), approximately $0.7 million of which had
been recognized as compensation expense in previous periods as a
result of the graded-basis of amortization utilized by the
Company.
As of December 31, 2006, there was approximately $11,000 of
unrecognized compensation cost associated with the
aforementioned restricted stock grant. The remainder of this
cost will be recognized as compensation expense in the first
quarter of 2007, as the remaining 20,000 shares fully
vested in January 2007.
Other
Stock-Based Compensation
In addition to the compensation expense reflected above for the
stock options granted during the year ended December 31,
2006, the accompanying condensed consolidated financial
statements include compensation expense amounts relating to the
aforementioned restricted stock grant as well as certain
compensatory options that were granted in 2004. Because the
Company utilized the prospective method of adoption for
SFAS No. 123R, all unvested awards as of
January 1, 2006, will continue to be accounted for pursuant
to APB No. 25 and SFAS No. 123. Accordingly, the
accompanying condensed consolidated statements of operations
include approximately $17,000, $37,000, and $20,000 in
compensation expense for the years ended December 31, 2006,
2005, and 2004 respectively, associated with such compensatory
option grants.
|
|
(4)
|
Related Party
Transactions
|
Subscriptions
Receivable
The Company currently has loans outstanding with certain
employees related to past exercises of employee stock options
and purchases of the Companys common stock, as applicable.
Such loans, which were initiated in 2003, are reflected as
subscriptions receivable in the accompanying consolidated
balance sheet. The rate of interest on each of these loans is 5%
per annum. In connection with the investment by TA Associates in
February 2005 (Note 9)
F-67
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
and the concurrent redemption of a portion of the Companys
common stock, approximately $0.4 million of the outstanding
loans were repaid to the Company. Additionally, in the third
quarter of 2006, the Company repurchased 15,255 shares of
the Companys common stock held by certain of the
Companys executive officers for approximately
$1.3 million in proceeds. Such proceeds were primarily
utilized by the executive officers to repay the majority of the
above-discussed subscriptions receivable, including all accrued
and unpaid interest related thereto. Such loans were required to
be repaid pursuant to SEC rules and regulations prohibiting
registrants from having loans with executive officers. As a
result of the aforementioned repayments, the total amount
outstanding under such loans, including accrued interest, was
$0.3 million and $1.5 million as of December 31,
2006 and 2005, respectively.
Other Related
Parties
Prior to December 2005, one of our primary investors, The
CapStreet Group, owned a minority interest in Susser Holdings,
LLC, a company for whom the Company provided ATM management
services during the normal course of business. Amounts earned
from Susser Holdings accounted for approximately 1.5% and 2.1%
of the Companys total revenues for the years ended
December 31, 2005 and 2004, respectively.
Bansi, an entity that owns a minority interest in the
Companys subsidiary Cardtronics Mexico, provided various
ATM management services to Cardtronics Mexico during the normal
course of business in 2006, including serving as the vault cash
provider, bank sponsor, and landlord for Cardtronics Mexico as
well as providing other miscellaneous services. Amounts paid to
Bansi represented less than 0.1% of the Companys total
operating and selling, general, and administrative expenses for
the year.
Jorge Diaz, a member of the Companys Board of Directors,
is the President and Chief Executive Officer of Personix, a
division of Fiserv. In 2006, both Personix (though indirectly)
and Fiserv provided third party services during the normal
course of business for Cardtronics. Amounts paid to Personix and
Fiserv represented less than 0.2% of the Companys total
operating and selling, general, and administrative expenses for
the year.
Fred R. Lummis, the Chairman of the Companys Board of
Directors, is also a senior advisor to The CapStreet Group, LLC,
the ultimate general partner of CapStreet II and CapStreet
Parallel II, the Companys primary stockholders.
Additionally, Michael Wilson and Roger Kafker, both of whom are
on the Companys Board of Directors, are managing directors
of TA Associates, Inc., affiliates of which are
Cardtronics stockholders and own a majority of the
Companys outstanding Series B Preferred Stock
(Note 9). Each of the Companys independent
Board members, unless otherwise indicated in Part III,
Item 11. Executive Compensation, are paid a fee of
$1,000 per Board meeting attended. Furthermore, all Board
members are reimbursed for customary travel expenses and meals.
Pursuant to a restricted stock agreement dated January 20,
2003, the Company sold the President and Chief Executive Officer
of the Company 80,000 shares of common stock in exchange
for a promissory note in the amount of $940,800. The agreement
permits the Company to repurchase a portion of such shares prior
to January 20, 2007 in certain circumstances. The agreement
also contained a provision allowing the shares to be
put to the Company in an amount sufficient to retire
the entire unpaid principal balance of the promissory note plus
accrued interest. On February 4, 2004, the Company amended
the restricted stock agreement to remove such put
right. The Company recognized approximately $0.2 million,
$0.5 million, and $0.9 million in compensation expense
in the
F-68
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
accompanying consolidated statements of operations for the years
ended December 31, 2006, 2005, and 2004, respectively,
associated with such restricted stock grant.
Approximately 24% of the Companys outstanding common
stock, including vested options to purchase shares of the
Companys stock, was redeemed by the Company in connection
with the Series B preferred stock issuance consummated in
February 2005. The common shares redeemed were held by members
of management, employees, certain of the Companys
directors, and The CapStreet Group. Additionally, the net
proceeds from the Series B preferred stock offering were
utilized to redeem all of the Companys issued and
outstanding Series A preferred stock held by The CapStreet
Group, including all accrued and unpaid dividends with respect
thereto.
|
|
(5)
|
Prepaid Expenses,
Deferred Costs, and Other Current Assets
|
A summary of prepaid expenses, deferred costs, and other current
assets is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Prepaid expenses
|
|
$
|
6,469
|
|
|
$
|
3,258
|
|
Available for sale securities, at market value
|
|
|
4,184
|
|
|
|
|
|
Current portion of interest rate swaps
|
|
|
4,079
|
|
|
|
3,270
|
|
Deferred costs and other current assets
|
|
|
446
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,178
|
|
|
$
|
6,756
|
|
|
|
|
|
|
|
|
|
|
The increase in prepaid expenses as of December 31, 2006,
is attributable to additional prepayments of merchant fees paid
by the Companys U.K. operations in late 2006.
The available for sale securities included above consist of
approximately 310,000 shares of Winn-Dixies
post-bankruptcy equity securities. In February 2005, Winn-Dixie
filed for bankruptcy protection. As part of its bankruptcy
restructuring efforts, Winn-Dixie closed or sold a significant
number of its stores, many of which included Cardtronics
ATMs. Accordingly, the Company deinstalled its ATMs that were
operating in those locations. Pursuant to the terms of the
Companys ATM management agreement with Winn-Dixie,
Winn-Dixie was required to compensate the Company for the ATMs
that were removed due to its store closures; however, such
payments were not made, given Winn-Dixies bankruptcy
proceedings. As a part of Winn-Dixies plan of
reorganization, the bankruptcy court approved an amended ATM
operating agreement entered into between the Company and
Winn-Dixie. Such agreement, which became final in November 2006
along with Winn-Dixies plan of reorganization, outlined
(1) the terms and conditions under which Cardtronics would
continue to operate ATMs located in the Winn-Dixie store
locations that remained in operation and (2) certain
consideration that Winn-Dixie was required to remit to
Cardtronics in satisfaction of the rebate amounts owed to the
Company pursuant to the previous ATM operating agreement. Such
consideration, which was received during the fourth quarter of
2006, was comprised of a $1.0 million cash payment and the
aforementioned 310,000 shares of post-bankruptcy equity
securities, which are included in the above table. These
securities had an initial cost basis of approximately
$3.4 million. Accordingly, the Company recorded a gain of
$4.4 million for the receipt of these items, which is
included in other income on the accompanying consolidated
statement of operations for the year ended December 31,
2006. As of December 31, 2006, the fair value of the equity
securities was approximately $4.2 million. The related
$0.8 million of unrealized gains associated with such
equity securities have been recorded in other comprehensive
income, net of taxes. The
F-69
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Company subsequently sold these securities in January 2007 for
total gross proceeds of approximately $3.9 million.
|
|
(6)
|
Property and
Equipment, net
|
A summary of property and equipment is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
ATM equipment and related costs
|
|
$
|
114,803
|
|
|
$
|
89,136
|
|
Office furniture, fixtures, and other
|
|
|
9,299
|
|
|
|
7,157
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
124,102
|
|
|
|
96,293
|
|
Less accumulated depreciation
|
|
|
(37,434
|
)
|
|
|
(22,142
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$
|
86,668
|
|
|
$
|
74,151
|
|
|
|
|
|
|
|
|
|
|
ATMs held as deployments in process, as discussed in
Note 1(i), totaled $3.1 million and
$2.9 million as of December 31, 2006 and 2005,
respectively.
Intangible
Assets with Indefinite Lives
The following table depicts the net carrying amount of the
Companys intangible assets with indefinite lives as of
December 31, 2006 and 2005, as well as the changes in the
net carrying amounts for the year ended December 31, 2006
by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Trade Name
|
|
|
|
|
|
|
U.S.
|
|
|
U.K.
|
|
|
Mexico
|
|
|
U.S.
|
|
|
U.K.
|
|
|
Total
|
|
|
Balance at December 31, 2005
|
|
$
|
88,806
|
|
|
$
|
72,751
|
|
|
$
|
|
|
|
$
|
200
|
|
|
$
|
3,471
|
|
|
$
|
165,228
|
|
Acquisitions
|
|
|
115
|
|
|
|
|
|
|
|
1,030
|
|
|
|
|
|
|
|
|
|
|
|
1,145
|
|
Purchase price adjustments
|
|
|
(2,219
|
)
|
|
|
241
|
|
|
|
(334
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,312
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
9,180
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
452
|
|
|
|
9,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
$
|
86,702
|
|
|
$
|
82,172
|
|
|
$
|
689
|
|
|
$
|
200
|
|
|
$
|
3,923
|
|
|
$
|
173,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously discussed in Note 2, certain
adjustments related to deferred taxes were made to the ETA and
Bank Machine purchase price allocations during 2006. Such
adjustments had the effect of reducing the previously reported
goodwill amount for the ETA acquisition by $2.2 million,
and increasing the previously reported goodwill amount for the
Bank Machine acquisition by $0.2 million.
F-70
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Intangible
Assets with Definite Lives
The following is a summary of the Companys intangible
assets that are subject to amortization as of December 31,
2006 (in thousands) as well as the weighted average remaining
amortization period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Amortization
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Period
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Customer contracts and relationships
|
|
|
6.0 years
|
|
|
$
|
83,670
|
|
|
$
|
(31,378
|
)
|
|
$
|
52,292
|
|
Exclusive license agreements
|
|
|
5.4 years
|
|
|
|
4,261
|
|
|
|
(1,066
|
)
|
|
|
3,195
|
|
Non-compete agreements
|
|
|
3.1 years
|
|
|
|
99
|
|
|
|
(23
|
)
|
|
|
76
|
|
Deferred financing costs
|
|
|
5.4 years
|
|
|
|
11,001
|
|
|
|
(2,924
|
)
|
|
|
8,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5.9 years
|
|
|
$
|
99,031
|
|
|
$
|
(35,391
|
)
|
|
$
|
63,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys intangible assets with definite lives are
being amortized over the assets estimated useful lives
utilizing the straight-line method. Estimated useful lives range
from three to twelve years for customer contracts and
relationships and four to eight years for exclusive license
agreements. The Company has also assumed an estimated life of
four years for its non-compete agreements. Deferred financing
costs are amortized through interest expense over the
contractual term of the underlying borrowings utilizing the
effective interest method. The Company periodically reviews the
estimated useful lives of its identifiable intangible assets,
taking into consideration any events or circumstances that might
result in a reduction in fair value or a revision of those
estimated useful lives.
Amortization of customer contracts and relationships, exclusive
license agreements, and non-compete agreements, including
impairment charges, totaled $12.0 million,
$9.0 million, and $5.5 million for the years ended
December 31, 2006, 2005, and 2004, respectively. Included
in the 2006 year-to-date figure was approximately
$2.8 million in additional amortization expense related to
the impairment of the intangible asset associated with the
acquired BASC ATM portfolio in our U.S. reporting segment.
Such impairment relates to a reduction in anticipated future
cash flows resulting from a higher than anticipated attrition
rate associated with this acquired portfolio. Additionally, the
Company recorded a $1.2 million impairment charge in 2005
related to certain other previously acquired merchant
contract/relationship intangible assets.
Amortization of deferred financing costs and bond discount
totaled $1.4 million, $1.9 million, and
$1.0 million for the years ended December 31, 2006,
2005, and 2004, respectively. During the year ended 2006, the
Company wrote-off approximately $0.5 million in deferred
financing costs in connection with certain modifications made to
the Companys existing revolving credit facilities.
Additionally, during the year ended December 31, 2005, the
Company also wrote-off approximately $5.0 million in
deferred financing costs as a result of an amendment to its
existing bank credit facility and the repayment of its existing
term loans.
F-71
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Estimated amortization expense for the Companys intangible
assets with definite lives for each of the next five years, and
thereafter is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts
|
|
|
Exclusive
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
License
|
|
|
Non-Compete
|
|
|
Deferred
|
|
|
|
|
|
|
Relationships
|
|
|
Agreements
|
|
|
Agreements
|
|
|
Financing Costs
|
|
|
Total
|
|
|
2007
|
|
$
|
9,105
|
|
|
$
|
636
|
|
|
$
|
25
|
|
|
$
|
1,313
|
|
|
$
|
11,079
|
|
2008
|
|
|
9,112
|
|
|
|
576
|
|
|
|
25
|
|
|
|
1,382
|
|
|
|
11,095
|
|
2009
|
|
|
8,796
|
|
|
|
571
|
|
|
|
25
|
|
|
|
1,459
|
|
|
|
10,851
|
|
2010
|
|
|
7,813
|
|
|
|
475
|
|
|
|
1
|
|
|
|
1,134
|
|
|
|
9,423
|
|
2011
|
|
|
5,839
|
|
|
|
361
|
|
|
|
|
|
|
|
977
|
|
|
|
7,177
|
|
Thereafter
|
|
|
11,627
|
|
|
|
576
|
|
|
|
|
|
|
|
1,812
|
|
|
|
14,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,292
|
|
|
$
|
3,195
|
|
|
$
|
76
|
|
|
$
|
8,077
|
|
|
$
|
63,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8)
|
Prepaid Expenses
and Other Non-current Assets
|
A summary of prepaid expenses and other non-current assets is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Interest rate swaps, non-current
|
|
$
|
2,994
|
|
|
$
|
4,910
|
|
Prepaid expenses
|
|
|
627
|
|
|
|
376
|
|
Other
|
|
|
1,720
|
|
|
|
474
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,341
|
|
|
$
|
5,760
|
|
|
|
|
|
|
|
|
|
|
As previously mentioned, the Company issued 17,500 shares
of its Series A preferred stock to The CapStreet Group in
multiple transactions during 2001 and 2002 for approximately
$17.5 million in gross proceeds. All Series A
preferred shares, including any accrued and unpaid dividends
with respect thereto, were redeemed by the Company in February
2005, concurrent with the investment made by TA Associates.
On February 10, 2005, the Company issued
894,568 shares of its Series B preferred stock for
$75.0 million in proceeds to TA Associates. The net
proceeds from the offering were utilized to redeem the
Companys outstanding Series A preferred stock, as
noted above, and a portion of the Companys outstanding
common stock and vested options. On May 17, 2005, the
Company issued an additional 35,221 shares of its
Series B preferred stock as partial consideration for the
Bank Machine acquisition. Such shares were valued at
approximately $3.0 million, consistent with the value per
share received in connection with the February 10, 2005
issuance. The following table shows changes in the net carrying
value of the Companys Series B preferred stock for
the years ended December 31, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Balance as of beginning of period
|
|
$
|
76,329
|
|
|
$
|
|
|
Issuances, net of issuance costs of $1,858
|
|
|
|
|
|
|
76,095
|
|
Accretion of issuance costs
|
|
|
265
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
Balance as of end of period
|
|
$
|
76,594
|
|
|
$
|
76,329
|
|
|
|
|
|
|
|
|
|
|
F-72
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The net carrying values as of December 31, 2006 and 2005
are net of unaccreted issuance costs of approximately
$1.4 million and $1.7 million, respectively. Such
issuance costs are being accreted on a straight-line basis
through February 2012, which represents the earliest optional
redemption date (outlined below).
The Series B preferred stockholders have certain
preferences to the Companys common stockholders, including
board representation rights and the right to receive their
original issue price prior to any distributions being made to
the common stockholders as part of a liquidation, dissolution or
winding up of the Company. As of December 31, 2006 and
2005, the liquidation value of the Series B preferred
shares totaled $78.0 million. The Series B preferred
shares are convertible into the same number of shares of the
Companys common stock, as adjusted for future stock splits
and the issuance of dilutive securities. The Series B
preferred shares have no stated dividends and are redeemable at
the option of a majority of the Series B holders at any
time on or after the earlier of (i) December 2013 and
(ii) the date that is 123 days after the first day
that none of the Companys 9.25% senior subordinated
notes remain outstanding, but in no event earlier than February
2012.
The Companys accrued liabilities include accrued cash
management fees, maintenance obligations, and fees owed to
merchants. Other accrued expenses include processing and other
miscellaneous charges. A summary of the Companys accrued
liabilities for each of the periods presented below is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Accrued interest
|
|
$
|
7,954
|
|
|
$
|
7,328
|
|
Accrued merchant fees
|
|
|
7,915
|
|
|
|
7,613
|
|
Accrued purchases
|
|
|
4,467
|
|
|
|
2,292
|
|
Accrued compensation
|
|
|
3,499
|
|
|
|
1,722
|
|
Accrued armored
|
|
|
3,242
|
|
|
|
2,662
|
|
Accrued cash management fees
|
|
|
2,740
|
|
|
|
3,430
|
|
Accrued maintenance
|
|
|
2,090
|
|
|
|
1,431
|
|
Other accrued expenses
|
|
|
2,434
|
|
|
|
8,365
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,341
|
|
|
$
|
34,843
|
|
|
|
|
|
|
|
|
|
|
|
|
(11)
|
Other Long-term
Liabilities and Minority Interest in Subsidiary
|
The following is a detail of the components of the
Companys other long-term liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Asset retirement obligations
|
|
$
|
9,989
|
|
|
$
|
8,339
|
|
Deferred revenue
|
|
|
642
|
|
|
|
1,075
|
|
Minority interest in subsidiary
|
|
|
111
|
|
|
|
25
|
|
Other long-term liabilities
|
|
|
3,311
|
|
|
|
4,954
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,053
|
|
|
$
|
14,393
|
|
|
|
|
|
|
|
|
|
|
F-73
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The Companys long-term debt and notes payable as of
December 31, 2006 and 2005 consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Revolving credit loan facility bearing interest at LIBOR + 3.25%
as of December 31, 2006 and 2005 and PRIME + 2.50% for
swing-line borrowings as of December 31, 2006 and 2005
(weighted-average combined rate of 8.67% and 7.05% at
December 31, 2006 and 2005, respectively)
|
|
$
|
53,100
|
|
|
$
|
45,800
|
|
Senior subordinated notes due August 2013, net of unamortized
discount of $1.2 million and $1.3 million as of
December 31, 2006 and 2005, respectively (9.25% stated
rate, 9.375% effective yield)
|
|
|
198,783
|
|
|
|
198,656
|
|
Other
|
|
|
1,012
|
|
|
|
3,168
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
252,895
|
|
|
|
247,624
|
|
Less current portion
|
|
|
194
|
|
|
|
3,168
|
|
|
|
|
|
|
|
|
|
|
Total excluding current portion
|
|
$
|
252,701
|
|
|
$
|
244,456
|
|
|
|
|
|
|
|
|
|
|
Credit
Facility
On May 17, 2005, in connection with the acquisition of Bank
Machine, the Company replaced its then existing bank credit
facility with new facilities provided by BNP Paribas and Bank of
America, N.A. Such facilities were comprised of (i) a
revolving credit facility of up to $100.0 million,
(ii) a first lien term facility of up to
$125.0 million, and (iii) a second lien term facility
of up to $75.0 million. Borrowings under the facilities
were utilized to repay the Companys existing bank credit
facility and to fund the acquisition of Bank Machine. In
connection with the issuance of the Companys senior
subordinated notes in August 2005 (as discussed below), the
first and second lien term loan facilities were repaid in full,
and the revolving credit facility was increased to a maximum
borrowing capacity of $150.0 million. Borrowings under the
revolving credit facility, which mature in May 2010, bear
interest at LIBOR plus a spread, which was 3.25% as of
December 31, 2006. Additionally, the Company pays a
commitment fee of 0.5% per annum on the unused portion of the
revolving credit facility.
In February 2006, the Company amended the revolving credit
facility to remove and modify certain restrictive covenants
contained within the facility and to reduce the maximum
borrowing capacity from $150.0 million to
$125.0 million. As a result of this amendment, the Company
recorded a pre-tax charge of approximately $0.5 million
associated with the write-off of previously deferred financing
costs related to the facility. Additionally, the Company
incurred approximately $0.1 million in fees associated with
such amendment. Although the maximum borrowing capacity was
reduced, the overall effect of the amendment was to increase the
Companys liquidity and financial flexibility through the
removal and modification of certain restrictive covenants
contained in the previous revolving credit facility. Such
covenants, which were originally structured to accommodate an
acquisitive growth strategy, have either been eliminated or
modified to reflect a greater reliance on the Companys
internal growth initiatives. The primary restrictive covenants
within the facility now include (i) limitations on the
amount of senior debt that the Company can have outstanding at
any given point in time, (ii) the maintenance of a set
ratio of earnings to fixed charges, as computed on a rolling
12-month
basis,
F-74
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(iii) limitations on the amounts of restricted payments
that can be made in any given year, including dividends, and
(iv) limitations on the amount of capital expenditures that
the Company can incur on a rolling
12-month
basis. As of December 31, 2006, the Company was in
compliance with all applicable covenants and ratios in effect at
that time. The Companys borrowing capacity was
$52.8 million as of year-end.
Substantially all of the Companys assets, including the
stock of its wholly-owned domestic subsidiaries and 66.0% of the
stock of its foreign subsidiaries, are pledged to secure
borrowings made under the revolving credit facility.
Furthermore, each of the Companys domestic subsidiaries
has guaranteed the Companys obligations under such
facility. There are currently no restrictions on the ability of
the Companys wholly-owned subsidiaries to declare and pay
dividends directly to the Company.
Senior
Subordinated Notes
On August 12, 2005, the Company sold $200.0 million in
senior subordinated notes pursuant to Rule 144A of the
Securities Act of 1933. The Notes, which are subordinate to
borrowings made under the revolving credit facility, mature in
August 2013 and carry a 9.25% coupon with an effective yield of
9.375%. Interest under the Notes is paid semi-annually in
arrears on February 15th and August 15th of
each year. Net proceeds from the offering, after taking into
consideration direct offering costs, totaled approximately
$192.0 million. Such proceeds, along with cash on hand and
borrowings under the Companys revolving credit facility,
were utilized to repay all of the outstanding borrowings,
including accrued but unpaid interest, under the Companys
first and second lien term loan facilities. The Notes, which are
guaranteed by the Companys domestic subsidiaries, contain
certain covenants that, among other things, limit the
Companys ability to incur additional indebtedness and make
certain types of restricted payments, including dividends. As of
December 31, 2006, the Company was in compliance with all
applicable covenants required under the Notes.
In addition, a provision of the Notes required the Company to
either (i) register the Notes with the SEC on or before
June 8, 2006 and successfully complete an exchange offer
with respect to such Notes within 30 days following such
registration or (ii) be subject to higher interest rates on
the Notes in subsequent periods. As a result of the
Companys inability to complete the registration of the
Notes by the aforementioned deadline, the annual interest rate
on the Notes increased from 9.25% to 9.50% in June 2006 and from
9.50% to 9.75% in September 2006. However, upon the successful
completion of the Companys exchange offer in October 2006,
the interest rate associated with the Notes reverted back to the
9.25% stated rate.
Other
Facilities
In addition to the above revolving credit facility, Bank Machine
has a £2.0 million unsecured overdraft facility that
expires in July 2007. Such facility, which bears interest at
1.75% over the banks base rate (currently 5.25%), is
utilized for general corporate purposes for the Companys
United Kingdom operations. As of December 31, 2006,
approximately £1.9 million of this overdraft facility
had been utilized to help fund certain working capital
commitments and to post a £275,000 bond. No amounts were
outstanding under the facility as of December 31, 2005,
with the exception of the aforementioned bond. Amounts
outstanding under the overdraft facility, other than those
amounts utilized for posting bonds, are reflected in accounts
payable in our consolidated balance sheet, as such amounts are
automatically repaid once cash deposits are made to the
underlying bank accounts.
F-75
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
In November 2006, Cardtronics Mexico entered into a five-year
loan agreement. Such agreement, which bears interest at 11.03%,
is to be utilized for the purchase of additional ATMs to support
the Companys Mexico operations. As of December 31,
2006, approximately $9.3 million pesos ($858,000 U.S.) was
outstanding under this facility, with future borrowings to be
individually negotiated between the lender and Cardtronics.
Pursuant to the terms of the agreements, Cardtronics, Inc. has
issued a guaranty for 51.0% (its ownership percentage in
Cardtronics Mexico) of the obligations under these agreements.
As of December 31, 2006, the total amount of the guaranty
was $4.8 million pesos ($437,000 U.S.).
Debt
Maturities
Aggregate maturities of the principal amounts of the
Companys long-term debt as of December 31, 2006, were
as follows (in thousands) for the years indicated:
|
|
|
|
|
|
|
Amount
|
|
|
2007
|
|
$
|
194
|
|
2008
|
|
|
145
|
|
2009
|
|
|
207
|
|
2010
|
|
|
53,331
|
|
2011
|
|
|
235
|
|
2012
|
|
|
|
|
2013
|
|
|
200,000
|
|
|
|
|
|
|
Total
|
|
$
|
254,112
|
|
|
|
|
|
|
Reflected in the 2013 amount in the above table is the full face
value of the Companys senior subordinated notes, which has
been reflected net of unamortized discount of approximately
$1.2 million in the accompanying consolidated balance sheet.
The Company offers a 401(k) plan to its employees but has not
historically made matching contributions. In 2007, the Company
began matching 25.0% of employee contributions up to 6.0% of the
employees salary.
|
|
(14)
|
Commitments and
Contingencies
|
Legal and
Other Regulatory Matters
National Federation of the Blind
(NFB). In connection with its
acquisition of the E*TRADE Access, Inc. (ETA) ATM
portfolio, the Company assumed ETAs interests and
liability for a lawsuit instituted in the United States District
Court for the District of Massachusetts (the Court)
by the NFB, the NFBs Massachusetts chapter, and several
individual blind persons (collectively, the Private
Plaintiffs) as well as the Commonwealth of Massachusetts
with respect to claims relating to the alleged inaccessibility
of ATMs for those persons who are visually-impaired. After the
acquisition of the ETA ATM portfolio, the Private Plaintiffs
named Cardtronics as a co-defendant with ETA and ETAs
parentE*Trade Bank, and the scope of the lawsuit has
expanded to include both ETAs ATMs as well as the
Companys pre-existing ATM portfolio.
In this lawsuit, the Private Plaintiffs have sought to require
ETA and Cardtronics to make all of the ATMs
voice-enabled, or capable of providing audible
instructions to a visually-impaired person upon that person
inserting a headset plug into an outlet at the ATM. The
F-76
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Court has ruled twice (in February 2005 and February
2006) that the Private Plaintiffs are not entitled to a
voice-enabled remedy. Nonetheless, in response to an
order to describe the relief they seek, the Private Plaintiffs
have subsequently stated that they demand either
(i) voice-guidance technology on each ATM;
(ii) Braille instructions on each ATM that
allow individuals who are blind to understand every screen
(which, we assume, may imply a dynamic Braille pad); or
(iii) a telephone on each ATM so the user could speak with
a remote operator who can either see the screen on the ATM or
can enter information for the user.
Cardtronics has asserted numerous defenses to the lawsuit. One
defense is that, for ATMs owned by third parties, the Company
does not have the right to make changes to the ATMs without the
consent of the third parties. Another defense is that the ADA
does not require the Company to make changes to ATMs if the
changes are not feasible or achievable, or if the costs outweigh
the benefits. The costs of retrofitting or replacing existing
ATMs with voice technology, dynamic Braille keypads, or
telephones and interactive data lines would be significant.
Additionally, in situations in which the ATMs are owned by third
parties and Cardtronics provides processing services, the costs
are extremely disproportionate to the Companys interests
in the ATMs. Moreover, recent depositions taken of six
individuals, which the Private Plaintiffs have requested the
Court to add as additional plaintiffs, demonstrates that the NFB
is interested only in voice-guidance, which (as noted above) the
Court has twice ruled that this remedy is not available. Based
upon this revelation, Cardtronics has renewed its motion of
summary judgment because of the Private Plaintiffs failure
to identify a non-voice remedy that will make Cardtronics-owned
or operated ATMs accessible.
Cardtronics has also challenged the Private Plaintiffs
standing to file this lawsuit. In response to the Companys
challenge, the Private Plaintiffs have requested the
Courts permission to (i) amend their complaint to
name additional individual plaintiffs and (ii) certify the
lawsuit as a class action under the Federal Rules of Civil
Procedure. Cardtronics has objected to the Private
Plaintiffs motion, on the grounds that the plaintiffs who
initially filed the lawsuit lacked standing and this deficiency
arguably cannot be cured by amending the complaint. Hearings on
both the standing issue and Cardtronics motion for summary
judgment are scheduled to occur during the second quarter of
2007.
Other Matters. In June 2006, Duane Reade, Inc.
(Customer), one of the Companys merchant
customers, filed a complaint in the United States District Court
for the Southern District of New York (the Federal
Action). The complaint, which was formally served to the
Company in September 2006, alleged that Cardtronics had breached
an ATM operating agreement between the parties by failing to pay
the Customer the proper amount of fees under the agreement. On
October 6, 2006, Cardtronics filed a petition in the
District Court of Harris County, Texas, seeking a declaratory
judgment that Cardtronics had not breached the ATM operating
agreement. On October 10, 2006, the Customer filed a second
complaint, this time in New York State Supreme Court, alleging
the same claims it had alleged in the Federal Action.
Subsequently, the Customer withdrew the Federal Action because
the federal court did not have subject matter jurisdiction. The
Customer is claiming that it is owed no less than $600,000 in
lost revenues, exclusive of interests and costs, and projects
that additional damages will accrue to them at a rate of
approximately $100,000 per month, exclusive of interest and
costs. As the underlying causes of action in the two lawsuits
are essentially the same, it is probable that only one of the
lawsuits will proceed. The Company does not believe the venue of
that lawsuit is material to the ultimate outcome. The Company
also believes that it will ultimately prevail upon the merits in
this matter, although it gives no assurance as to the final
outcome. Furthermore, the Company believes that the ultimate
resolution of this dispute will not have a material adverse
impact on the Companys financial condition or results of
operations.
F-77
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The Company is also subject to various legal proceedings and
claims arising in the ordinary course of its business. The
Companys management does not expect the outcome in any of
these legal proceedings, individually or collectively, to have a
material adverse effect on the Companys financial
condition or results of operations.
Purchase
Commitments
The Company had no material purchase commitments as of
December 31, 2006. However, the Company does expect to make
significant capital expenditures in 2007 to upgrade its
Company-owned ATMs to be both Encrypting PIN Pad and Triple Data
Encryption Standard (Triple DES) compliant. In
connection with these security upgrades, the Company plans to
make substantially all of its Company-owned ATMs voice-enabled,
as would be required under recently proposed Accessibility
Guidelines under the ADA. The Company currently expects to spend
approximately $14.0 million to accomplish these upgrades by
the end of 2007.
In addition to the above, the Company may be required to make
additional capital expenditures in future periods to comply with
anticipated new regulations resulting from the ADA or the
outcome of the aforementioned lawsuit involving the NFB and the
Commonwealth of Massachusetts.
Operating and
Capital Lease Obligations
As of December 31, 2006, the Company was a party to several
operating leases, primarily for office space and the rental of
space at certain merchant locations. Such leases expire at
various times during the next seven years. Rental expense under
these leases for the year ended December 31, 2006, was
approximately $7.2 million. Rental expense for each of the
years ended December 31, 2005 and 2004 was approximately
$8.6 million.
Future minimum lease payments under the Companys operating
and merchant space leases (with initial lease terms in excess of
one year) as of December 31, 2006, were as follows (in
thousands) for each of the five years indicated and in the
aggregate thereafter:
|
|
|
|
|
2007
|
|
$
|
5,586
|
|
2008
|
|
|
5,412
|
|
2009
|
|
|
3,061
|
|
2010
|
|
|
1,723
|
|
2011
|
|
|
1,533
|
|
Thereafter
|
|
|
2,760
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
20,075
|
|
|
|
|
|
|
|
|
(15)
|
Derivative
Financial Instruments
|
As a result of its variable-rate debt and ATM cash management
activities, the Company is exposed to changes in interest rates
(LIBOR in the U.S. and the U.K. and TIIE in Mexico). It is
the Companys policy to limit the variability of a portion
of its expected future interest payments as a result of changes
in LIBOR by utilizing certain types of derivative financial
instruments.
F-78
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
To meet the above objective, the Company entered into several
LIBOR-based interest rate swaps during 2004 and 2005 to fix the
interest rate paid on $300.0 million of the Companys
current and anticipated outstanding ATM cash balances in the
United States. The effect of such swaps was to fix the interest
rate paid on the following notional amounts for the periods
identified (in thousands):
|
|
|
|
|
|
|
|
Weighted
|
|
|
Notional
|
|
Average
|
|
|
Amount
|
|
Fixed Rate
|
|
Period
|
|
$300,000
|
|
|
3.86%
|
|
January 1, 2007December 31, 2007
|
$300,000
|
|
|
4.35%
|
|
January 1, 2008December 31, 2008
|
$200,000
|
|
|
4.36%
|
|
January 1, 2009December 31, 2009
|
$100,000
|
|
|
4.34%
|
|
January 1, 2010December 31, 2010
|
Net amounts paid or received under such swaps are recorded as
adjustments to the Companys cost of ATM operating revenues
in the accompanying consolidated statements of operations.
During the years ended December 31, 2006, 2005 and 2004,
there were no gains or losses recorded in the consolidated
statements of operations as a result of ineffectiveness
associated with the Companys interest rate swaps.
The Companys interest rate swaps have been classified as
cash flow hedges pursuant to SFAS No. 133, as amended.
Accordingly, changes in the fair values of the Companys
interest rate swaps have been reported in accumulated other
comprehensive income (loss) in the accompanying consolidated
balance sheets. As of December 31, 2006, the unrealized
gain on such swaps totaled approximately $4.4 million, net
of income taxes of $2.7 million. During the year ending
December 31, 2007, the Company expects approximately
$2.6 million, net of income taxes of $1.5 million, of
the gains included in accumulated other comprehensive income
(loss) to be reclassified into cost of ATM operating revenues as
a yield adjustment to the hedged forecasted interest payments on
the Companys expected ATM cash balances.
Income tax expense (benefit) based on income (loss) before
income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22
|
|
State and local
|
|
|
28
|
|
|
|
|
|
|
|
64
|
|
Foreign
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
58
|
|
|
$
|
|
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
(584
|
)
|
|
$
|
(1,831
|
)
|
|
$
|
3,117
|
|
State and local
|
|
|
251
|
|
|
|
332
|
|
|
|
373
|
|
Foreign
|
|
|
787
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
454
|
|
|
|
(1,270
|
)
|
|
|
3,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
512
|
|
|
$
|
(1,270
|
)
|
|
$
|
3,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-79
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Income tax expense (benefit) differs from amounts computed by
applying the statutory rate to income (loss) before taxes as
follows for the years ended December 31, 2006, 2005, and
2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Income tax (benefit) expense at the statutory rate of 34.0%
|
|
$
|
(6
|
)
|
|
$
|
(1,254
|
)
|
|
$
|
3,190
|
|
State tax, net of federal benefit
|
|
|
195
|
|
|
|
131
|
|
|
|
316
|
|
Non-deductible expenses
|
|
|
52
|
|
|
|
22
|
|
|
|
11
|
|
Potential non-deductible interest of foreign subsidiary
|
|
|
205
|
|
|
|
|
|
|
|
|
|
Impact of foreign rate differential
|
|
|
(55
|
)
|
|
|
(31
|
)
|
|
|
|
|
Change in effective state tax rate
|
|
|
|
|
|
|
(72
|
)
|
|
|
66
|
|
Other
|
|
|
16
|
|
|
|
(66
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
407
|
|
|
$
|
(1,270
|
)
|
|
$
|
3,576
|
|
Change in valuation allowance
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax provision (benefit)
|
|
$
|
512
|
|
|
$
|
(1,270
|
)
|
|
$
|
3,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net current and non-current deferred tax assets and
liabilities (by tax jurisdiction) as of December 31, 2006
and 2005, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
United Kingdom
|
|
|
Mexico
|
|
|
Consolidated
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Current deferred tax asset
|
|
$
|
440
|
|
|
$
|
1,143
|
|
|
$
|
149
|
|
|
$
|
|
|
|
$
|
47
|
|
|
$
|
|
|
|
$
|
636
|
|
|
$
|
1,143
|
|
Valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
Current deferred tax liability
|
|
|
(316
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(316
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
$
|
124
|
|
|
$
|
1,105
|
|
|
$
|
149
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
273
|
|
|
$
|
1,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax asset
|
|
$
|
11,740
|
|
|
$
|
8,080
|
|
|
$
|
248
|
|
|
$
|
466
|
|
|
$
|
187
|
|
|
$
|
|
|
|
$
|
12,175
|
|
|
$
|
8,546
|
|
Valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
(101
|
)
|
|
|
|
|
Non-current deferred tax liability
|
|
|
(16,120
|
)
|
|
|
(16,054
|
)
|
|
|
(3,493
|
)
|
|
|
(2,292
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
(19,699
|
)
|
|
|
(18,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax liability
|
|
$
|
(4,380
|
)
|
|
$
|
(7,974
|
)
|
|
$
|
(3,245
|
)
|
|
$
|
(1,826
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7,625
|
)
|
|
$
|
(9,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(4,256
|
)
|
|
$
|
(6,869
|
)
|
|
$
|
(3,096
|
)
|
|
$
|
(1,826
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7,352
|
)
|
|
$
|
(8,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-80
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2006 and 2005, were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Current deferred tax assets:
|
|
|
|
|
|
|
|
|
Reserve for receivables
|
|
$
|
98
|
|
|
$
|
59
|
|
Accrued liabilities and reserves
|
|
|
438
|
|
|
|
1,032
|
|
Other
|
|
|
100
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
636
|
|
|
|
1,143
|
|
Valuation allowance
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets
|
|
|
589
|
|
|
|
1,143
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
|
8,827
|
|
|
|
6,998
|
|
Share-based compensation
|
|
|
353
|
|
|
|
87
|
|
SFAS No. 143 deinstallation costs
|
|
|
367
|
|
|
|
634
|
|
Deferred revenue and reserves
|
|
|
1,679
|
|
|
|
758
|
|
Other
|
|
|
949
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
12,175
|
|
|
|
8,546
|
|
Valuation allowance
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets
|
|
|
12,074
|
|
|
|
8,546
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred stock compensation
|
|
|
|
|
|
|
(67
|
)
|
Unrealized gain on marketable securities
|
|
|
(293
|
)
|
|
|
|
|
Other
|
|
|
(23
|
)
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax liabilities
|
|
|
(316
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Tangible and intangible assets
|
|
|
(13,506
|
)
|
|
|
(12,960
|
)
|
Deployment costs
|
|
|
(3,569
|
)
|
|
|
(2,352
|
)
|
Unrealized gain on derivative instruments
|
|
|
(2,624
|
)
|
|
|
(3,034
|
)
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax liabilities
|
|
|
(19,699
|
)
|
|
|
(18,346
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(7,352
|
)
|
|
$
|
(8,695
|
)
|
|
|
|
|
|
|
|
|
|
The deferred tax liabilities associated with the Companys
unrealized gains on marketable securities and derivative
instruments have been reflected within the accumulated other
comprehensive income (loss) balance in the accompanying
consolidated balance sheet.
In assessing the realizability of deferred tax assets,
management considers 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.
Management primarily considers the scheduled reversal of
deferred tax liabilities and projected future taxable income
amounts in making this assessment. During the past three years,
the Company has embarked on a significant capital expansion
program, the result of which has been greater
F-81
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
tax depreciation expense when compared to book depreciation
expense. Based upon the scheduled reversal of the deferred tax
liabilities created by such accelerated depreciation, as well as
projections for future taxable income over the periods in which
the Companys deferred tax assets will be deductible,
management believes it is more likely than not that the Company
will realize the benefits of the deductible differences within
its United States and United Kingdom tax jurisdictions. With
respect to Mexico, the Company has established a valuation
allowance to fully reserve for the net deferred tax assets
associated with that operation. Such decision was based on the
level of historical book and tax losses generated by CCS Mexico
prior to the Companys acquisition in February 2006, and
the continued losses generated by that business subsequent to
the acquisition date. As of December 31, 2006, such
valuation allowance totaled approximately $0.1 million.
As of December 31, 2006, the Company had approximately
$25.0 million in United States federal net operating loss
carryforwards that will begin expiring in 2021, and
$2.9 million in state net operating loss carryforwards that
will begin expiring in 2007. The United States federal net
operating loss amount excludes roughly $0.1 million in
potential future tax benefits associated with an employee stock
option exercise that occurred in 2006. Because the Company is
currently in a net operating loss position, such benefit has not
been reflected in the Companys consolidated financial
statements, as required by SFAS No. 123R.
As of December 31, 2006, the Company had approximately
$0.7 million in net operating loss carryforwards in Mexico
that will begin expiring in 2009. However, as noted above, the
deferred tax benefit associated with such carryforward has been
fully reserved for through a valuation allowance. If realized,
approximately $43,000 of such valuation allowance will be
applied to reduce the goodwill balance recorded in connection
with the Companys acquisition of a majority stake in CCS
Mexico.
The Company currently believes that the unremitted earnings of
its United Kingdom and Mexico subsidiaries will be reinvested in
the corresponding country of origin for an indefinite period of
time. Accordingly, no deferred taxes have been provided for on
the differences between the Companys book basis and
underlying tax basis in those subsidiaries or on the foreign
currency translation adjustment amounts related to such
operations.
|
|
(17)
|
Significant
Suppliers
|
The Company purchased equipment from one supplier that accounted
for 74.4% and 72.0% of the Companys total ATM purchases
for the years ended December 31, 2006 and 2005,
respectively. As of December 31, 2006 and 2005, accounts
payable to this supplier represented approximately 6.6% and less
than 1.0%, respectively, of the Companys consolidated
accounts payable balances.
Historically, the Company considered its business activities to
be a single reporting segment as it derived at least 90.0% of it
revenues and operating results from one business
segmentATM Management Services. As a result of the
acquisition of Bank Machine in May 2005, the Company began
reporting its operations under two distinct reportable
segmentsDomestic and International, with the International
segment consisting entirely of our Bank Machine operations.
Further, as a result of the acquisition of a majority interest
in Cardtronics Mexico in February 2006, the Company renamed its
historical Domestic and International segments to the United
States and United Kingdom segments, respectively, and added a
third segmentMexico. While each of the Companys
reportable segments provides similar
F-82
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
ATM-related
services, each segment is managed separately, as each requires
different marketing and business strategies. All of the
Companys operations for the year ended December 31,
2004, related to the Companys U.S. reporting segment.
The following summarizes certain financial data for each of the
Companys reportable segments as of and for the years ended
December 31, 2006, 2005, and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Year Ended December 31, 2006
|
|
|
|
|
|
|
United
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Kingdom
|
|
|
Mexico
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenue from external customers
|
|
$
|
250,425
|
|
|
$
|
42,157
|
|
|
$
|
1,023
|
|
|
$
|
|
|
|
$
|
293,605
|
|
Intersegment revenue
|
|
|
340
|
|
|
|
|
|
|
|
|
|
|
|
(340
|
)
|
|
|
|
|
Depreciation, depletion, and amortization expense
|
|
|
24,819
|
|
|
|
5,675
|
|
|
|
84
|
|
|
|
|
|
|
|
30,578
|
|
Interest income
|
|
|
(3,676
|
)
|
|
|
(164
|
)
|
|
|
(5
|
)
|
|
|
3,464
|
|
|
|
(381
|
)
|
Interest expense
|
|
|
25,443
|
|
|
|
3,464
|
|
|
|
10
|
|
|
|
(3,464
|
)
|
|
|
25,453
|
|
(Loss) income before income taxes
|
|
|
(1,503
|
)
|
|
|
1,957
|
|
|
|
(388
|
)
|
|
|
(85
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets
|
|
$
|
238,127
|
|
|
$
|
126,070
|
|
|
$
|
3,559
|
|
|
$
|
|
|
|
$
|
367,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures (1)
|
|
$
|
19,384
|
|
|
$
|
14,912
|
|
|
$
|
1,795
|
|
|
$
|
|
|
|
$
|
36,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Year Ended December 31, 2005
|
|
|
|
|
|
|
United
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Kingdom
|
|
|
Mexico (2)
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenue from external customers
|
|
$
|
247,143
|
|
|
$
|
21,822
|
|
|
|
|
|
|
$
|
|
|
|
$
|
268,965
|
|
Intersegment revenue
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
(358
|
)
|
|
|
|
|
Depreciation, depletion, and amortization expense
|
|
|
19,211
|
|
|
|
2,720
|
|
|
|
|
|
|
|
|
|
|
|
21,931
|
|
Interest income
|
|
|
(3,238
|
)
|
|
|
(988
|
)
|
|
|
|
|
|
|
2,637
|
|
|
|
(1,589
|
)
|
Interest expense
|
|
|
24,015
|
|
|
|
2,637
|
|
|
|
|
|
|
|
(2,637
|
)
|
|
|
24,015
|
|
(Loss) income before income taxes
|
|
|
(4,335
|
)
|
|
|
766
|
|
|
|
|
|
|
|
(119
|
)
|
|
|
(3,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets
|
|
$
|
238,377
|
|
|
$
|
105,374
|
|
|
|
|
|
|
$
|
|
|
|
$
|
343,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
23,344
|
|
|
$
|
8,582
|
|
|
|
|
|
|
$
|
|
|
|
$
|
31,926
|
|
F-83
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Year Ended December 31, 2004
|
|
|
|
|
|
|
United
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Kingdom (3)
|
|
|
Mexico (2)
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenue from external customers
|
|
$
|
192,915
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
192,915
|
|
Intersegment revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion, and amortization expense
|
|
|
12,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,293
|
|
Interest income
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(283
|
)
|
Interest expense
|
|
|
5,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,518
|
|
(Loss) income before income taxes
|
|
|
9,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets
|
|
$
|
197,667
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
197,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
19,747
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
19,747
|
|
|
|
|
(1)
|
|
Capital expenditure amounts in 2006
exclude the Companys initial investment in Mexico but
include the purchase of assets to be leased.
|
|
(2)
|
|
No information is shown in 2005 or
2004 for the Companys Mexico operations, as they were not
acquired until 2006.
|
|
(3)
|
|
No information is shown in 2004 for
the Companys United Kingdom operations, as they were not
acquired until 2005.
|
During the years ended December 31, 2006, 2005, and 2004,
no single merchant customer represented 10.0% or more of the
Companys consolidated revenues.
F-84
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
(19)
|
Supplemental
Guarantor Financial Information
|
The Companys senior subordinated notes issued in August
2005 are guaranteed on a full and unconditional basis by the
Companys domestic subsidiaries. The following information
sets forth the condensed consolidating statements of operations
and cash flows for the years ended December 31, 2006, 2005,
and 2004, and the condensed consolidating balance sheets as of
December 31, 2006 and 2005, of (i) Cardtronics, Inc.,
the parent company and issuer of the senior subordinated notes
(Parent); (ii) the Companys domestic
subsidiaries on a combined basis (collectively, the
Guarantors); and (iii) the Companys
international subsidiaries on a combined basis (collectively,
the Non-Guarantors) (in thousands):
Consolidating
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
250,765
|
|
|
$
|
43,180
|
|
|
$
|
(340
|
)
|
|
$
|
293,605
|
|
Operating costs and expenses
|
|
|
865
|
|
|
|
235,450
|
|
|
|
37,480
|
|
|
|
(257
|
)
|
|
|
273,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(865
|
)
|
|
|
15,315
|
|
|
|
5,700
|
|
|
|
(83
|
)
|
|
|
20,067
|
|
Interest expense, net
|
|
|
8,491
|
|
|
|
13,276
|
|
|
|
3,305
|
|
|
|
|
|
|
|
25,072
|
|
Equity in (earnings) losses of subsidiaries
|
|
|
(8,151
|
)
|
|
|
|
|
|
|
|
|
|
|
8,151
|
|
|
|
|
|
Other (income) expense, net
|
|
|
(175
|
)
|
|
|
(5,639
|
)
|
|
|
826
|
|
|
|
2
|
|
|
|
(4,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(1,030
|
)
|
|
|
7,678
|
|
|
|
1,569
|
|
|
|
(8,236
|
)
|
|
|
(19
|
)
|
Income tax provision (benefit)
|
|
|
(584
|
)
|
|
|
278
|
|
|
|
818
|
|
|
|
|
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(446
|
)
|
|
|
7,400
|
|
|
|
751
|
|
|
|
(8,236
|
)
|
|
|
(531
|
)
|
Preferred stock dividends and accretion expense
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(711
|
)
|
|
$
|
7,400
|
|
|
$
|
751
|
|
|
$
|
(8,236
|
)
|
|
$
|
(796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-85
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
247,501
|
|
|
$
|
21,822
|
|
|
$
|
(358
|
)
|
|
$
|
268,965
|
|
Operating costs and expenses
|
|
|
2,547
|
|
|
|
227,682
|
|
|
|
19,254
|
|
|
|
(239
|
)
|
|
|
249,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(2,547
|
)
|
|
|
19,819
|
|
|
|
2,568
|
|
|
|
(119
|
)
|
|
|
19,721
|
|
Interest expense, net
|
|
|
8,062
|
|
|
|
12,715
|
|
|
|
1,649
|
|
|
|
|
|
|
|
22,426
|
|
Equity in (earnings) losses of subsidiaries
|
|
|
(6,399
|
)
|
|
|
|
|
|
|
|
|
|
|
6,399
|
|
|
|
|
|
Other expense, net
|
|
|
|
|
|
|
830
|
|
|
|
153
|
|
|
|
|
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(4,210
|
)
|
|
|
6,274
|
|
|
|
766
|
|
|
|
(6,518
|
)
|
|
|
(3,688
|
)
|
Income tax provision (benefit)
|
|
|
(1,911
|
)
|
|
|
412
|
|
|
|
229
|
|
|
|
|
|
|
|
(1,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(2,299
|
)
|
|
|
5,862
|
|
|
|
537
|
|
|
|
(6,518
|
)
|
|
|
(2,418
|
)
|
Preferred stock dividends and accretion expense
|
|
|
1,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(3,694
|
)
|
|
$
|
5,862
|
|
|
$
|
537
|
|
|
$
|
(6,518
|
)
|
|
$
|
(3,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
192,915
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
192,915
|
|
Operating costs and expenses
|
|
|
2,542
|
|
|
|
175,529
|
|
|
|
|
|
|
|
|
|
|
|
178,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(2,542
|
)
|
|
|
17,386
|
|
|
|
|
|
|
|
|
|
|
|
14,844
|
|
Interest expense (income), net
|
|
|
(155
|
)
|
|
|
5,390
|
|
|
|
|
|
|
|
|
|
|
|
5,235
|
|
Equity in (earnings) losses of subsidiaries
|
|
|
(7,354
|
)
|
|
|
|
|
|
|
|
|
|
|
7,354
|
|
|
|
|
|
Other expense, net
|
|
|
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
4,967
|
|
|
|
11,768
|
|
|
|
|
|
|
|
(7,354
|
)
|
|
|
9,381
|
|
Income tax provision (benefit)
|
|
|
(838
|
)
|
|
|
4,414
|
|
|
|
|
|
|
|
|
|
|
|
3,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
5,805
|
|
|
|
7,354
|
|
|
|
|
|
|
|
(7,354
|
)
|
|
|
5,805
|
|
Preferred stock dividends and accretion expense
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
3,493
|
|
|
$
|
7,354
|
|
|
$
|
|
|
|
$
|
(7,354
|
)
|
|
$
|
3,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-86
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Consolidating
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
97
|
|
|
$
|
1,818
|
|
|
$
|
803
|
|
|
$
|
|
|
|
$
|
2,718
|
|
Accounts and notes receivable, net
|
|
|
3,463
|
|
|
|
13,068
|
|
|
|
1,966
|
|
|
|
(3,606
|
)
|
|
|
14,891
|
|
Other current assets
|
|
|
544
|
|
|
|
14,069
|
|
|
|
6,204
|
|
|
|
(39
|
)
|
|
|
20,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,104
|
|
|
|
28,955
|
|
|
|
8,973
|
|
|
|
(3,645
|
)
|
|
|
38,387
|
|
Property and equipment, net
|
|
|
|
|
|
|
59,512
|
|
|
|
27,326
|
|
|
|
(170
|
)
|
|
|
86,668
|
|
Intangible assets, net
|
|
|
6,982
|
|
|
|
45,757
|
|
|
|
15,024
|
|
|
|
|
|
|
|
67,763
|
|
Goodwill
|
|
|
1,228
|
|
|
|
85,474
|
|
|
|
82,861
|
|
|
|
|
|
|
|
169,563
|
|
Investments and advances to subsidiaries
|
|
|
79,848
|
|
|
|
|
|
|
|
|
|
|
|
(79,848
|
)
|
|
|
|
|
Intercompany receivable
|
|
|
(122
|
)
|
|
|
5,046
|
|
|
|
(4,924
|
)
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
211,175
|
|
|
|
5,006
|
|
|
|
369
|
|
|
|
(211,175
|
)
|
|
|
5,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
303,215
|
|
|
$
|
229,750
|
|
|
$
|
129,629
|
|
|
$
|
(294,838
|
)
|
|
$
|
367,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Deficit:
|
Current portion of long-term debt and notes payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
194
|
|
|
$
|
|
|
|
$
|
194
|
|
Current portion of other long-term liabilities
|
|
|
|
|
|
|
2,458
|
|
|
|
43
|
|
|
|
|
|
|
|
2,501
|
|
Accounts payable and accrued liabilities
|
|
|
8,458
|
|
|
|
32,202
|
|
|
|
14,218
|
|
|
|
(3,622
|
)
|
|
|
51,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
8,458
|
|
|
|
34,660
|
|
|
|
14,455
|
|
|
|
(3,622
|
)
|
|
|
53,951
|
|
Long-term debt, less current portion
|
|
|
251,883
|
|
|
|
132,351
|
|
|
|
79,641
|
|
|
|
(211,174
|
)
|
|
|
252,701
|
|
Other non-current liabilities and minority interest
|
|
|
3,448
|
|
|
|
12,519
|
|
|
|
5,711
|
|
|
|
|
|
|
|
21,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
263,789
|
|
|
|
179,530
|
|
|
|
99,807
|
|
|
|
(214,796
|
)
|
|
|
328,330
|
|
Preferred stock
|
|
|
76,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,594
|
|
Stockholders (deficit) equity
|
|
|
(37,168
|
)
|
|
|
50,220
|
|
|
|
29,822
|
|
|
|
(80,042
|
)
|
|
|
(37,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
303,215
|
|
|
$
|
229,750
|
|
|
$
|
129,629
|
|
|
$
|
(294,838
|
)
|
|
$
|
367,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-87
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
118
|
|
|
$
|
1,544
|
|
|
$
|
37
|
|
|
$
|
|
|
|
$
|
1,699
|
|
Accounts and notes receivable, net
|
|
|
2,047
|
|
|
|
10,706
|
|
|
|
836
|
|
|
|
(3,843
|
)
|
|
|
9,746
|
|
Other current assets
|
|
|
1,669
|
|
|
|
7,480
|
|
|
|
5,691
|
|
|
|
|
|
|
|
14,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,834
|
|
|
|
19,730
|
|
|
|
6,564
|
|
|
|
(3,843
|
)
|
|
|
26,285
|
|
Property and equipment, net
|
|
|
|
|
|
|
58,283
|
|
|
|
15,991
|
|
|
|
(123
|
)
|
|
|
74,151
|
|
Intangible assets, net
|
|
|
10,906
|
|
|
|
52,243
|
|
|
|
12,816
|
|
|
|
|
|
|
|
75,965
|
|
Goodwill
|
|
|
3,684
|
|
|
|
85,122
|
|
|
|
72,751
|
|
|
|
|
|
|
|
161,557
|
|
Investments and advances to subsidiaries
|
|
|
62,562
|
|
|
|
|
|
|
|
|
|
|
|
(62,562
|
)
|
|
|
|
|
Intercompany receivable
|
|
|
487
|
|
|
|
2,288
|
|
|
|
(2,775
|
)
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
205,389
|
|
|
|
6,476
|
|
|
|
27
|
|
|
|
(206,099
|
)
|
|
|
5,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
286,862
|
|
|
$
|
224,142
|
|
|
$
|
105,374
|
|
|
$
|
(272,627
|
)
|
|
$
|
343,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Deficit:
|
Current portion of long-term debt and notes payable
|
|
$
|
|
|
|
$
|
42
|
|
|
$
|
3,126
|
|
|
$
|
|
|
|
$
|
3,168
|
|
Current portion of other long-term liabilities
|
|
|
|
|
|
|
2,251
|
|
|
|
|
|
|
|
|
|
|
|
2,251
|
|
Accounts payable and accrued liabilities
|
|
|
8,650
|
|
|
|
29,444
|
|
|
|
8,203
|
|
|
|
(3,859
|
)
|
|
|
42,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
8,650
|
|
|
|
31,737
|
|
|
|
11,329
|
|
|
|
(3,859
|
)
|
|
|
47,857
|
|
Long-term debt, less current portion
|
|
|
244,456
|
|
|
|
139,551
|
|
|
|
66,548
|
|
|
|
(206,099
|
)
|
|
|
244,456
|
|
Other non-current liabilities and minority interest
|
|
|
6,511
|
|
|
|
14,629
|
|
|
|
3,053
|
|
|
|
|
|
|
|
24,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
259,617
|
|
|
|
185,917
|
|
|
|
80,930
|
|
|
|
(209,958
|
)
|
|
|
316,506
|
|
Preferred stock
|
|
|
76,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,329
|
|
Stockholders (deficit) equity
|
|
|
(49,084
|
)
|
|
|
38,225
|
|
|
|
24,444
|
|
|
|
(62,669
|
)
|
|
|
(49,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
286,862
|
|
|
$
|
224,142
|
|
|
$
|
105,374
|
|
|
$
|
(272,627
|
)
|
|
$
|
343,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-88
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Consolidating
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
Cash flows provided by (used in) operating activities
|
|
$
|
(12,940
|
)
|
|
$
|
27,065
|
|
|
$
|
11,321
|
|
|
$
|
|
|
|
$
|
25,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net of sales
|
|
|
|
|
|
|
(17,534
|
)
|
|
|
(15,070
|
)
|
|
|
|
|
|
|
(32,604
|
)
|
Payments for exclusive license agreements and site acquisition
costs
|
|
|
|
|
|
|
(1,842
|
)
|
|
|
(1,515
|
)
|
|
|
|
|
|
|
(3,357
|
)
|
Acquisitions, net of cash acquired
|
|
|
(1,039
|
)
|
|
|
27
|
|
|
|
|
|
|
|
1,000
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows (used in) provided by investing activities
|
|
|
(1,039
|
)
|
|
|
(19,349
|
)
|
|
|
(16,585
|
)
|
|
|
1,000
|
|
|
|
(35,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
44,800
|
|
|
|
23,200
|
|
|
|
861
|
|
|
|
(23,200
|
)
|
|
|
45,661
|
|
Repayments of long-term debt
|
|
|
(37,500
|
)
|
|
|
(30,400
|
)
|
|
|
(3
|
)
|
|
|
30,400
|
|
|
|
(37,503
|
)
|
Issuance of long-term notes receivable
|
|
|
(4,300
|
)
|
|
|
|
|
|
|
|
|
|
|
4,300
|
|
|
|
|
|
Payments received on long-term notes receivable
|
|
|
11,500
|
|
|
|
|
|
|
|
|
|
|
|
(11,500
|
)
|
|
|
|
|
Utilization of bank overdraft facility, net
|
|
|
|
|
|
|
|
|
|
|
3,818
|
|
|
|
|
|
|
|
3,818
|
|
Issuance of capital stock
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
(1,000
|
)
|
|
|
|
|
Purchase of treasury stock
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
Other financing activities
|
|
|
(492
|
)
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
|
(734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows (used in) provided by financing activities
|
|
|
13,958
|
|
|
|
(7,442
|
)
|
|
|
5,676
|
|
|
|
(1,000
|
)
|
|
|
11,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
354
|
|
|
|
|
|
|
|
354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(21
|
)
|
|
|
274
|
|
|
|
766
|
|
|
|
|
|
|
|
1,019
|
|
Cash and cash equivalents at beginning of period
|
|
|
118
|
|
|
|
1,544
|
|
|
|
37
|
|
|
|
|
|
|
|
1,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
97
|
|
|
$
|
1,818
|
|
|
$
|
803
|
|
|
$
|
|
|
|
$
|
2,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-89
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
|
Cash flows provided by (used in) operating activities
|
|
$
|
(4,607
|
)
|
|
$
|
32,563
|
|
|
$
|
5,271
|
|
|
$
|
|
|
|
$
|
33,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net of sales
|
|
|
|
|
|
|
(22,300
|
)
|
|
|
(4,883
|
)
|
|
|
|
|
|
|
(27,183
|
)
|
Payments for exclusive license agreements and site acquisition
costs
|
|
|
|
|
|
|
(988
|
)
|
|
|
(3,677
|
)
|
|
|
|
|
|
|
(4,665
|
)
|
Acquisitions, net of cash acquired
|
|
|
(25,369
|
)
|
|
|
(17,108
|
)
|
|
|
(88,669
|
)
|
|
|
23,034
|
|
|
|
(108,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows (used in) provided by investing activities
|
|
|
(25,369
|
)
|
|
|
(40,396
|
)
|
|
|
(97,229
|
)
|
|
|
23,034
|
|
|
|
(139,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
451,056
|
|
|
|
173,037
|
|
|
|
66,235
|
|
|
|
(212,319
|
)
|
|
|
478,009
|
|
Repayments of long-term debt
|
|
|
(206,600
|
)
|
|
|
(162,141
|
)
|
|
|
|
|
|
|
6,600
|
|
|
|
(362,141
|
)
|
Issuance of long-term notes receivable
|
|
|
(215,083
|
)
|
|
|
|
|
|
|
|
|
|
|
215,083
|
|
|
|
|
|
Payments received on long-term notes receivable
|
|
|
6,600
|
|
|
|
|
|
|
|
|
|
|
|
(6,600
|
)
|
|
|
|
|
Issuance of preferred stock
|
|
|
73,142
|
|
|
|
|
|
|
|
|
|
|
|
155
|
|
|
|
73,297
|
|
Redemption of preferred stock
|
|
|
(24,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,795
|
)
|
Purchase of treasury stock
|
|
|
(46,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,453
|
)
|
Issuance of capital stock
|
|
|
88
|
|
|
|
|
|
|
|
25,954
|
|
|
|
(25,953
|
)
|
|
|
89
|
|
Other financing activities
|
|
|
(7,861
|
)
|
|
|
(2,931
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,792
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows (used in) provided by financing activities
|
|
|
30,094
|
|
|
|
7,965
|
|
|
|
92,189
|
|
|
|
(23,034
|
)
|
|
|
107,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
(194
|
)
|
|
|
|
|
|
|
(194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
118
|
|
|
|
132
|
|
|
|
37
|
|
|
|
|
|
|
|
287
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
1,412
|
|
|
|
|
|
|
|
|
|
|
|
1,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
118
|
|
|
$
|
1,544
|
|
|
$
|
37
|
|
|
$
|
|
|
|
$
|
1,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-90
CARDTRONICS,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Total
|
|
Cash flows provided by operating activities
|
|
$
|
|
|
|
$
|
20,466
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net
|
|
|
|
|
|
|
(18,176
|
)
|
|
|
|
|
|
|
|
|
|
|
(18,176
|
)
|
Payments for exclusive license agreements and site acquisition
costs
|
|
|
|
|
|
|
(1,125
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,125
|
)
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(99,625
|
)
|
|
|
|
|
|
|
|
|
|
|
(99,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows (used in) investing activities
|
|
|
|
|
|
|
(118,926
|
)
|
|
|
|
|
|
|
|
|
|
|
(118,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
136,041
|
|
|
|
|
|
|
|
|
|
|
|
136,041
|
|
Repayments of long-term debt
|
|
|
|
|
|
|
(38,925
|
)
|
|
|
|
|
|
|
|
|
|
|
(38,925
|
)
|
Issuance of capital stock
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
Other financing activities
|
|
|
|
|
|
|
(2,862
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by financing activities
|
|
|
|
|
|
|
94,318
|
|
|
|
|
|
|
|
|
|
|
|
94,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
|
|
|
|
(4,142
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,142
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
5,554
|
|
|
|
|
|
|
|
|
|
|
|
5,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
1,412
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-91
7-ELEVEN
FINANCIAL SERVICES BUSINESS
Financial Statements
for the
Three and Six Months Ended June 30, 2006 and 2007
(Unaudited)
F-92
7-ELEVEN
FINANCIAL SERVICES BUSINESS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
13,015
|
|
|
$
|
10,304
|
|
Accounts receivable
|
|
|
74,565
|
|
|
|
65,868
|
|
Other current assets
|
|
|
7,215
|
|
|
|
2,986
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
94,795
|
|
|
|
79,158
|
|
Property and equipment, net
|
|
|
90,484
|
|
|
|
85,901
|
|
Goodwill
|
|
|
35,593
|
|
|
|
35,593
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
220,872
|
|
|
$
|
200,652
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
72,242
|
|
|
$
|
69,020
|
|
Capital lease obligations due within one year
|
|
|
1,465
|
|
|
|
1,244
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
73,707
|
|
|
|
70,264
|
|
Deferred credits and other liabilities
|
|
|
13,004
|
|
|
|
11,594
|
|
Long-term capital lease obligations
|
|
|
1,900
|
|
|
|
1,381
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Common stock, $.10 par value
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
128,273
|
|
|
|
111,570
|
|
Accumulated earnings
|
|
|
3,988
|
|
|
|
5,843
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
132,261
|
|
|
|
117,413
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
220,872
|
|
|
$
|
200,652
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-93
7-ELEVEN
FINANCIAL SERVICES BUSINESS
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30
|
|
|
Six Months Ended June 30
|
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
$
|
39,449
|
|
|
$
|
37,111
|
|
|
$
|
71,030
|
|
|
$
|
73,464
|
|
Other income
|
|
|
5,407
|
|
|
|
951
|
|
|
|
10,049
|
|
|
|
6,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
44,856
|
|
|
|
38,062
|
|
|
|
81,079
|
|
|
|
79,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission expense to 7-Eleven
|
|
|
12,343
|
|
|
|
13,709
|
|
|
|
23,273
|
|
|
|
26,124
|
|
Other expenses
|
|
|
22,735
|
|
|
|
25,312
|
|
|
|
47,338
|
|
|
|
50,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, selling, general and administrative expenses
|
|
|
35,078
|
|
|
|
39,021
|
|
|
|
70,611
|
|
|
|
76,471
|
|
Interest expense, net
|
|
|
170
|
|
|
|
42
|
|
|
|
408
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
35,248
|
|
|
|
39,063
|
|
|
|
71,019
|
|
|
|
76,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) BEFORE INCOME TAXES
|
|
|
9,608
|
|
|
|
(1,001
|
)
|
|
|
10,060
|
|
|
|
3,021
|
|
INCOME TAX EXPENSE (BENEFIT)
|
|
|
3,709
|
|
|
|
(386
|
)
|
|
|
3,883
|
|
|
|
1,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS (LOSS)
|
|
$
|
5,899
|
|
|
$
|
(615
|
)
|
|
$
|
6,177
|
|
|
$
|
1,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-94
7-ELEVEN
FINANCIAL SERVICES BUSINESS
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
|
|
|
|
2006
|
|
|
2007
|
|
|
|
Restated
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
6,177
|
|
|
$
|
1,855
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of equipment
|
|
|
7,516
|
|
|
|
9,121
|
|
Deferred income taxes
|
|
|
690
|
|
|
|
(763
|
)
|
Net (gain) loss on disposal of equipment
|
|
|
(9
|
)
|
|
|
36
|
|
(Increase) decrease in accounts receivable
|
|
|
(2,414
|
)
|
|
|
8,697
|
|
Decrease in other assets
|
|
|
3,557
|
|
|
|
4,195
|
|
Decrease in trade accounts payable and other liabilities
|
|
|
(14,798
|
)
|
|
|
(3,835
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
719
|
|
|
|
19,306
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Payments for purchase of equipment
|
|
|
(12,188
|
)
|
|
|
(4,574
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(12,188
|
)
|
|
|
(4,574
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Principal payments under capital lease obligations
|
|
|
(4,203
|
)
|
|
|
(740
|
)
|
Capital contributions from (returned to) 7-Eleven, net
|
|
|
35,650
|
|
|
|
(16,703
|
)
|
Payments related to capital lease purchase
|
|
|
(22,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
8,808
|
|
|
|
(17,443
|
)
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
(2,661
|
)
|
|
|
(2,711
|
)
|
CASH AT BEGINNING OF YEAR
|
|
|
15,392
|
|
|
|
13,015
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
|
$
|
12,731
|
|
|
$
|
10,304
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-95
7-ELEVEN
FINANCIAL SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2006 and 2007
(Unaudited)
|
|
NOTE 1:
|
BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Basis of Presentation 7-Eleven, Inc. (the
Company or 7-Eleven) operates a business
consisting of a network of both traditional ATMs and
advance-function devices (Vcoms) in most of its
stores and selected licensed stores in the United States. The
business consists of fixed assets, placement agreements
governing the right to offer ATM services in 7-Eleven stores,
product partner agreements and third party lease and service
agreements (7-Eleven Financial Services Business or
the Business). The Company has staff dedicated to
the Business and allocates certain additional costs to the
Business where appropriate. The financial statements include the
accounts of the Business. The operations of the Business include
both the operations of the ATM network used in 7-Eleven stores
as well as the
VcomTM
equipment and services provided therein. The assets and certain
service agreements pertaining to the ATM network are maintained
in a subsidiary of the Company known as
Vcomtm
Financial Services, Inc.
The balance sheet as of June 30, 2007, and the related
statements of earnings for the three- and six-month periods
ended June 30, 2006 and 2007, and the statements of cash
flows for the six-month periods ended June 30, 2006 and
2007, have been prepared by the Business without audit. In the
opinion of management, all adjustments necessary to state fairly
the financial position at June 30, 2007, and the results of
operations and cash flows for all periods presented have been
made. The results of operations for the interim periods are not
necessarily indicative of the operating results for the full
year.
The balance sheet as of December 31, 2006 is derived from
the audited financial statements as of and for the year then
ended but does not include all disclosures required by generally
accepted accounting principles. The notes accompanying the
financial statements in the Businesss audited report for
the year ended December 31, 2006 include accounting
policies and additional information pertinent to an
understanding of both the December 31, 2006 balance sheet
and the interim financial statements. The information has not
changed except as a result of normal transactions in the six
months ended June 30, 2007, and as discussed in the notes
herein.
Restatement of Previously Issued Financial
Statements The Business has restated its
previously issued financial statements for the six-months ended
June 30, 2006 to correct errors in the depreciation of
certain fixed assets. It was determined that these fixed assets
were not being depreciated commencing in the period the fixed
assets were initially placed in service in accordance with the
Companys fixed asset policy. The financial statements have
been restated to record $210,000 of additional depreciation in
operating, selling, general and administrative
F-96
7-ELEVEN
FINANCIAL SERVICES BUSINESS
NOTES TO
FINANCIAL STATEMENTS(Continued)
(OSG&A) expense for the three and six months
ended June 30, 2006. The effects of this restatement were
as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
Impact of
|
|
|
As
|
|
|
|
restatement
|
|
|
restated
|
|
|
|
(Dollars in thousands)
|
|
|
Six Months Ended June 30:
|
|
|
|
|
|
|
|
|
OSG&A
|
|
$
|
210
|
|
|
$
|
70,611
|
|
Earnings before income taxes
|
|
|
(210
|
)
|
|
|
10,060
|
|
Income tax expense
|
|
|
(81
|
)
|
|
|
3,883
|
|
Net earnings
|
|
|
(129
|
)
|
|
|
6,177
|
|
Net cash provided by operating activities
|
|
|
(2
|
)
|
|
|
719
|
|
Net cash provided by financing activities
|
|
|
2
|
|
|
|
8,808
|
|
Comprehensive Earnings Comprehensive
earnings are defined as the change in equity (net assets) of a
business enterprise during a period, except for those changes
resulting from investments by owners and distributions to
owners. There are no components of other comprehensive earnings
and, consequently, comprehensive earnings are equal to net
earnings.
|
|
NOTE 2:
|
RECENTLY ISSUED
ACCOUNTING STANDARDS
|
Effective January 1, 2007, the Company adopted the
provisions of Financial Accounting Standards Board
(FASB) Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes, which clarifies the accounting for
uncertainty in income taxes recognized in an entitys
financial statements in accordance with FASB Statement
No. 109, Accounting for Income Taxes.
FIN 48 prescribes a recognition threshold and measurement
criteria for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return.
FIN 48 also provides guidance on derecognition of tax
benefits, classification on the balance sheet, interest and
penalties, disclosure and transition.
The results of the Business are included in the income tax
filings of the Company in the United States, all states and in
various local jurisdictions. To the extent that the Business may
be included in an examination of the Companys income tax
filings, the ultimate outcome of examinations and discussions
with the Internal Revenue Service or other taxing authorities,
as well as an estimate of any related change to amounts recorded
for uncertain tax positions, cannot be presently determined. As
of the adoption date, the Business is subject to examination for
tax years 2003 2006.
There were no unrecognized tax benefits or accrued interest or
penalties applicable to the Business as of January 1, 2007
or as of June 30, 2007. Management does not believe it is
reasonably possible that the total amount of unrecognized tax
benefits will significantly increase or decrease within the next
12 months.
It is the Companys policy to classify accrued interest and
penalties related to unrecognized tax benefits in the provision
for income taxes. The Company has not recorded interest or
penalties for the Business related to FIN 48 for the three-
or six-month periods ended June 30, 2007.
F-97
7-ELEVEN
FINANCIAL SERVICES BUSINESS
NOTES TO
FINANCIAL STATEMENTS(Continued)
On July 20, 2007, the Company completed the sale of
substantially all of the assets of the Business to a third party
for approximately $135 million less transaction-related
costs. In conjunction with the sale, the two parties entered
into a
10-year
contractual agreement whereby the purchaser of the Business will
continue to operate ATM devices in U.S. 7-Eleven
Company-operated and franchised stores and in new stores opened
during this period. In accordance with the terms of the
agreement, the purchaser will pay fixed and variable-rate
commissions to 7-Eleven on a monthly basis.
F-98
7-ELEVEN
FINANCIAL SERVICES BUSINESS
Financial Statements
for the
Years Ended December 31, 2004, 2005 and 2006
F-99
Report
of Independent Auditors
To the Management and Board of Directors
of 7-Eleven, Inc.
In our opinion, the accompanying balance sheets and the related
statements of earnings and cash flows present fairly, in all
material respects, the financial position of the 7-Eleven
Financial Services Business (the Company) at
December 31, 2006 and 2005, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2006 in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 1 to the financial statements, the
Company has restated its 2006 and 2005 financial statements.
/s/ PricewaterhouseCoopers
LLP
Dallas, TX
March 29, 2007,
except for the restatement discussed
in Note 1 to the financial statements,
as to which the date is
July 16, 2007
F-100
7-ELEVEN
FINANCIAL SERVICES BUSINESS
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
|
Restated
|
|
|
Restated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
15,392
|
|
|
$
|
13,015
|
|
Accounts receivable
|
|
|
43,093
|
|
|
|
74,565
|
|
Other current assets
|
|
|
9,094
|
|
|
|
7,215
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
67,579
|
|
|
|
94,795
|
|
Property and equipment, net
|
|
|
86,970
|
|
|
|
90,484
|
|
Goodwill
|
|
|
35,593
|
|
|
|
35,593
|
|
Other assets
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
190,176
|
|
|
$
|
220,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
50,002
|
|
|
$
|
72,242
|
|
Capital lease obligations due within one year
|
|
|
9,008
|
|
|
|
1,465
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
59,010
|
|
|
|
73,707
|
|
Deferred credits and other liabilities
|
|
|
18,912
|
|
|
|
13,004
|
|
Long-term capital lease obligations
|
|
|
21,921
|
|
|
|
1,900
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Common stock, $.10 par value; 1,000 shares issued and
outstanding
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
97,122
|
|
|
|
128,273
|
|
Accumulated (deficit) earnings
|
|
|
(6,789
|
)
|
|
|
3,988
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
90,333
|
|
|
|
132,261
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
190,176
|
|
|
$
|
220,872
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-101
7-ELEVEN
FINANCIAL SERVICES BUSINESS
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
$
|
65,363
|
|
|
$
|
138,243
|
|
|
$
|
142,735
|
|
Other income
|
|
|
31,754
|
|
|
|
19,748
|
|
|
|
20,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
97,117
|
|
|
|
157,991
|
|
|
|
163,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission expense to 7-Eleven
|
|
|
25,816
|
|
|
|
47,413
|
|
|
|
49,233
|
|
Other expenses
|
|
|
68,577
|
|
|
|
101,657
|
|
|
|
96,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, selling, general and administrative expenses
|
|
|
94,393
|
|
|
|
149,070
|
|
|
|
145,589
|
|
Interest expense, net
|
|
|
909
|
|
|
|
1,056
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
95,302
|
|
|
|
150,126
|
|
|
|
146,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS BEFORE INCOME TAXES
|
|
|
1,815
|
|
|
|
7,865
|
|
|
|
17,553
|
|
INCOME TAX EXPENSE
|
|
|
702
|
|
|
|
3,036
|
|
|
|
6,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
|
|
$
|
1,113
|
|
|
$
|
4,829
|
|
|
$
|
10,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-102
7-ELEVEN
FINANCIAL SERVICES BUSINESS
(Dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1,113
|
|
|
$
|
4,829
|
|
|
$
|
10,777
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of equipment
|
|
|
12,465
|
|
|
|
14,456
|
|
|
|
15,820
|
|
Deferred income taxes
|
|
|
1,815
|
|
|
|
2,454
|
|
|
|
228
|
|
Net loss (gain) on disposal of equipment
|
|
|
116
|
|
|
|
(13
|
)
|
|
|
(115
|
)
|
Increase in accounts receivable
|
|
|
(16,274
|
)
|
|
|
(13,326
|
)
|
|
|
(31,472
|
)
|
Increase in other assets
|
|
|
(919
|
)
|
|
|
(1,437
|
)
|
|
|
(708
|
)
|
Increase in trade accounts payable and other liabilities
|
|
|
18,078
|
|
|
|
18,508
|
|
|
|
18,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
16,394
|
|
|
|
25,471
|
|
|
|
13,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for purchase of equipment
|
|
|
(11,151
|
)
|
|
|
(26,296
|
)
|
|
|
(19,325
|
)
|
Proceeds from sale of equipment
|
|
|
1,243
|
|
|
|
13
|
|
|
|
106
|
|
Acquisition of a business
|
|
|
(44,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(54,651
|
)
|
|
|
(26,283
|
)
|
|
|
(19,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments under capital lease obligations
|
|
|
(6,348
|
)
|
|
|
(9,549
|
)
|
|
|
(4,932
|
)
|
Capital contributions from 7-Eleven, net
|
|
|
54,324
|
|
|
|
15,713
|
|
|
|
31,151
|
|
Payments related to capital lease purchase
|
|
|
|
|
|
|
|
|
|
|
(22,632
|
)
|
Payments to 7-Eleven for return of
Vcomtm
kiosks cash inventory
|
|
|
(96,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(48,322
|
)
|
|
|
6,164
|
|
|
|
3,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH
|
|
|
(86,579
|
)
|
|
|
5,352
|
|
|
|
(2,377
|
)
|
CASH AT BEGINNING OF YEAR
|
|
|
96,619
|
|
|
|
10,040
|
|
|
|
15,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF YEAR
|
|
$
|
10,040
|
|
|
$
|
15,392
|
|
|
$
|
13,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RELATED DISCLOSURES FOR CASH FLOW REPORTING
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets obtained by entering into capital leases
|
|
$
|
3,291
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-103
7-ELEVEN
FINANCIAL SERVICES BUSINESS
STATEMENTS OF SHAREHOLDERS EQUITY
(Dollars and shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
(Deficit)
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Earnings
|
|
|
Equity
|
|
|
Balance at December 31, 2003
|
|
|
1
|
|
|
$
|
|
|
|
$
|
123,383
|
|
|
$
|
(12,731
|
)
|
|
$
|
110,652
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,113
|
|
|
|
1,113
|
|
Payments to 7-Eleven for return of
Vcomtm
kiosks cash inventory
|
|
|
|
|
|
|
|
|
|
|
(96,298
|
)
|
|
|
|
|
|
|
(96,298
|
)
|
Capital contributions from 7-Eleven, net
|
|
|
|
|
|
|
|
|
|
|
54,324
|
|
|
|
|
|
|
|
54,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
1
|
|
|
|
|
|
|
|
81,409
|
|
|
|
(11,618
|
)
|
|
|
69,791
|
|
Net earnings, as restated (see Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,829
|
|
|
|
4,829
|
|
Capital contributions from 7-Eleven, net, as restated (see
Note 1)
|
|
|
|
|
|
|
|
|
|
|
15,713
|
|
|
|
|
|
|
|
15,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005, as restated
|
|
|
1
|
|
|
|
|
|
|
|
97,122
|
|
|
|
(6,789
|
)
|
|
|
90,333
|
|
Net earnings, as restated (see Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,777
|
|
|
|
10,777
|
|
Capital contributions from 7-Eleven, net, as restated (see
Note 1)
|
|
|
|
|
|
|
|
|
|
|
31,151
|
|
|
|
|
|
|
|
31,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006, as restated
|
|
|
1
|
|
|
$
|
|
|
|
$
|
128,273
|
|
|
$
|
3,988
|
|
|
$
|
132,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
F-104
7-ELEVEN
FINANCIAL SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2004, 2005 and 2006
|
|
NOTE 1:
|
BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Basis of Presentation 7-Eleven, Inc. (the
Company or 7-Eleven) operates a business
consisting of a network of both traditional ATMs and
advance-function devices (Vcoms) in most of its
stores and selected licensed stores in the United States. The
business consists of fixed assets, placement agreements
governing the right to offer ATM services in 7-Eleven stores,
product partner agreements and third party lease and service
agreements (7-Eleven Financial Services Business or
the Business). The Company has staff dedicated to
the Business and allocates certain additional costs to the
Business where appropriate. The financial statements include the
accounts of the Business. The operations of the Business include
both the operations of the ATM network used in 7-Eleven stores
as well as the
Vcomtm
equipment and services provided therein. The assets and certain
service agreements pertaining to the ATM network are maintained
in a subsidiary of the Company known as
Vcomtm
Financial Services, Inc. (VFS).
Restatement of Previously Issued Financial
Statements The Business has restated its
previously issued December 31, 2006 financial statements to
correct errors in the depreciation of certain fixed assets as
well as in the correct amount of fixed assets associated with
the Business. We determined that certain fixed assets were not
being depreciated commencing in the period the fixed assets were
initially placed in service in accordance with the
Companys fixed asset policy. The financial statements have
been restated to record $430,000 of additional depreciation in
operating, selling, general and administrative
(OSG&A) expense for the year ended
December 31, 2006. We also determined that certain of the
Companys fixed assets were incorrectly included as being
associated with the Business and the financial statements were
restated to reduce property and equipment, net, by $903,000 as
of December 31, 2006.
These adjustments are in addition to the previous restatement of
the December 31, 2005 and 2006 financial statements to
appropriately include certain tender offer expenses resulting
from the purchase of the noncontrolling equity interests of the
Company by its owner, Seven-Eleven Japan Co., Ltd., in November
2005. These previously restated financial statements had been
restated to allocate $1.7 million of compensation costs
related to the managers and employees of the Business to
OSG&A expense for the year ended December 31, 2005.
F-105
7-ELEVEN
FINANCIAL SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS(Continued)
The restatement effect in the following table also includes
differences that were identified during the December 31,
2006 audit of the Business. We had determined these items were
individually and in the aggregate immaterial to the financial
statements. In connection with this restatement, we corrected
these items by recording them in the period to which they were
attributable. The effects of these restatements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
|
Impact of
|
|
|
|
|
|
Impact of
|
|
|
|
|
|
|
Restatement
|
|
|
As Restated
|
|
|
Restatement
|
|
|
As Restated
|
|
|
|
(dollars in thousands)
|
|
|
As of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
|
|
|
$
|
(379
|
)
|
|
$
|
94,795
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
(1,333
|
)
|
|
|
90,484
|
|
Total current liabilities
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
73,707
|
|
Deferred credits and other liabilities
|
|
|
|
|
|
|
|
|
|
|
(168
|
)
|
|
|
13,004
|
|
Additional paid-in capital
|
|
$
|
1,066
|
|
|
$
|
97,122
|
|
|
|
57
|
|
|
|
128,273
|
|
Accumulated (deficit) earnings
|
|
|
(1,066
|
)
|
|
|
(6,789
|
)
|
|
|
(1,502
|
)
|
|
|
3,988
|
|
Year Ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OSG&A
|
|
$
|
1,736
|
|
|
$
|
149,070
|
|
|
$
|
709
|
|
|
$
|
145,589
|
|
Earnings before income taxes
|
|
|
(1,736
|
)
|
|
|
7,865
|
|
|
|
(709
|
)
|
|
|
17,553
|
|
Income tax expense
|
|
|
(670
|
)
|
|
|
3,036
|
|
|
|
(273
|
)
|
|
|
6,776
|
|
Net earnings
|
|
|
(1,066
|
)
|
|
|
4,829
|
|
|
|
(436
|
)
|
|
|
10,777
|
|
Net cash provided by operating activities
|
|
|
(1,066
|
)
|
|
|
25,471
|
|
|
|
106
|
|
|
|
13,255
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
903
|
|
|
|
(19,219
|
)
|
Net cash provided by financing activities
|
|
|
1,066
|
|
|
|
6,164
|
|
|
|
(1,009
|
)
|
|
|
3,587
|
|
Use of Estimates The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting
period. Such estimates are based on historical experience and on
various other assumptions that the Company believes to be
reasonable under the circumstances. The results of these
estimates form the basis of the Companys judgments about
the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
Revenues Revenues are comprised of service
fees/commissions from ATM, check-cashing and other transactions
and are separately presented in the accompanying statements of
earnings. These transaction fees/commissions are recognized at
the point of sale.
Other Income Other income relates to
placement fees received from
Vcomtm
partners. The recognition of these funds is deferred until the
revenue is earned, as specified by the substance of the
applicable agreement.
In 2004, the Company and two of its
Vcomtm
partners, one of which provided check-cashing services, mutually
agreed to terminate their relationships. One of these partners
was simultaneously replaced with another check-cashing partner.
Included in the amount recognized in other income for the year
ended December 31, 2004, was $10.8 million that
resulted
F-106
7-ELEVEN
FINANCIAL SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS(Continued)
from the termination of these relationships. Because the
relationships were terminated, and the Company had no further
obligations under the agreements, recognition of the income was
accelerated.
Commission Expense to 7-Eleven A contractual
agreement between the Business and the Company is currently in
effect and expires at the end of 2009. This agreement and a
franchise amendment govern the portion of the ATM and
Vcomtm
transaction fees that are earned by the Business and paid to the
Company. These payments include both fixed and variable
components. The contractual agreement also governs other
ATM-related economics between the Business and the Company.
OSG&A Expenses In addition to the ATM
and
Vcomtm
commission expense to the Company, OSG&A expense includes
certain direct costs of the Business as well as other costs
incurred by the Company and allocated to the Business on a basis
that management believes to be reasonable. Such costs include
hardware, cash management, operations support, cash rent and
other corporate expenses. Also included in OSG&A expense
are reasonable allocations of indirect costs incurred by the
Company for compensation, travel and office space for certain
key employees who devote significant time to the Business. These
allocated costs were $866,000, $1.0 million and
$1.0 million for the years ended December 31, 2004,
2005 and 2006, respectively.
In addition, OSG&A expense for the year ended
December 31, 2005 includes $1.7 million of one-time
compensation paid to certain employees of the Company who
devoted time to the Business. The payments were made in November
2005 when the Company became a private company. This one-time
compensation cost represented the settlement for cash and
subsequent cancellation of equity-based awards issued under the
Companys stock plans as if they had been exercised at the
tender offer price on the transaction date.
Advertising costs, also included in OSG&A, generally are
charged to expense as incurred. Advertising costs were
$4.1 million, $2.5 million and $571,000 for the years
ended December 31, 2004, 2005 and 2006, respectively.
Income Taxes Income taxes are determined
using the liability method, where deferred tax assets and
liabilities are recognized for temporary differences between the
tax bases of assets and liabilities and their reported amounts
in the financial statements. Deferred tax assets include net
operating loss carryforwards, if any, and are reduced by a
valuation allowance if, based on available evidence, it is more
likely than not that some portion or all of the deferred tax
assets will not be realized.
Depreciation and Amortization Depreciation of
property and equipment is based on the estimated useful lives of
these assets using the straight-line method. Acquisition and
development costs for significant business systems and related
software for internal use are capitalized and are depreciated or
amortized on a straight-line basis. Included in depreciation and
amortization of property and equipment in the accompanying
statements of cash flows is software amortization expense of
$2.2 million, $3.8 million and $4.6 million for
the years ended December 31, 2004, 2005 and 2006,
respectively.
Amortization of capital lease assets and associated leasehold
improvements is based on the lease term or the estimated useful
life, whichever is shorter. Amortization of leasehold
improvements on operating leases is based on the shorter of the
estimated useful life or the lease term.
F-107
7-ELEVEN
FINANCIAL SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS(Continued)
The following table summarizes the years over which significant
assets are generally depreciated or amortized:
|
|
|
|
|
|
|
Years
|
|
|
Leasehold improvements
|
|
|
3 to 20
|
|
Equipment
|
|
|
3 to 10
|
|
Software
|
|
|
3 to 7
|
|
Asset Impairment The Companys
long-lived assets are reviewed for impairment and written down
to fair value whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. The
Company also conducted an impairment test of its goodwill as of
December 31, 2005 and 2006 (see Note 5). The
impairment test for goodwill is comprised of two steps. Step one
compares the fair value of the reporting unit with its carrying
amount including goodwill. If the carrying amount exceeds the
fair value, then goodwill is impaired and step two is required
to measure the amount of impairment loss. Step two compares the
implied fair value of the reporting units goodwill with
the carrying amount of that goodwill. If the carrying amount is
greater than the implied fair value of the goodwill, an
impairment loss is recognized for the excess.
Equity-Based Compensation The Business
participated in the Companys 1995 and 2005 Stock Incentive
Plans that provided for the granting of stock options, stock
appreciation rights, performance shares, restricted stock and
other forms of stock-based awards over
10-year
periods to certain key employees and officers of the Company.
All options granted were granted at exercise prices that were
equal to the fair market values on the date of grant. The
options vested annually in three equal installments, all
beginning one year after the grant date. Vested options were
exercisable within 10 years of the grant date. The fair
value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model. The following
weighted-average assumptions were used for the options granted
in the years ended December 31, 2004 and 2005: expected
life of three years, no dividend yield, risk-free interest
rates of 2.28% and 3.70%, and expected volatility of 46.30% and
31.48%, respectively.
The Company accounted for its stock-option grants under the
provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. If
compensation expense had been determined based on the grant-date
fair value of the awards consistent with the method prescribed
by SFAS No. 123, Accounting for Stock-Based
Compensation, the net earnings of the Business would have
been reduced to the pro forma amounts indicated in the following
table:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2004
|
|
|
2005
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Restated
|
|
|
Net earnings as reported
|
|
$
|
1,113
|
|
|
$
|
4,829
|
|
Add: Stock-based compensation expense included in reported net
earnings, net of tax
|
|
|
|
|
|
|
1,147
|
|
Less: Total stock-based compensation expense determined under
the fair-value-based method for all stock-option awards, net of
tax
|
|
|
(90
|
)
|
|
|
(1,019
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings
|
|
$
|
1,023
|
|
|
$
|
4,957
|
|
|
|
|
|
|
|
|
|
|
F-108
7-ELEVEN
FINANCIAL SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS(Continued)
Comprehensive Earnings Comprehensive
earnings are defined as the change in equity (net assets) of a
business enterprise during a period, except for those changes
resulting from investments by owners and distributions to
owners. There are no components of other comprehensive earnings
and, consequently, comprehensive earnings are equal to net
earnings.
|
|
NOTE 2:
|
ACCOUNTS
RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Restated
|
|
|
ATM receivables
|
|
$
|
35,606
|
|
|
$
|
61,787
|
|
Placement fee receivables
|
|
|
3,551
|
|
|
|
5,511
|
|
Other receivables
|
|
|
3,936
|
|
|
|
7,267
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,093
|
|
|
$
|
74,565
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3:
|
OTHER CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
Prepaid expenses
|
|
$
|
5,550
|
|
|
$
|
6,291
|
|
Deferred income taxes
|
|
|
3,544
|
|
|
|
924
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,094
|
|
|
$
|
7,215
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4:
|
PROPERTY AND
EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Restated
|
|
|
Cost
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
10
|
|
|
$
|
10
|
|
Developed software
|
|
|
26,772
|
|
|
|
28,645
|
|
Equipment
|
|
|
48,846
|
|
|
|
88,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,628
|
|
|
|
116,990
|
|
Original value
|
|
|
|
|
|
|
|
|
Capital lease equipment
|
|
|
46,399
|
|
|
|
3,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,027
|
|
|
|
120,689
|
|
Accumulated depreciation and amortization (includes $8,442 and
$13,081 related to developed software)
|
|
|
(35,057
|
)
|
|
|
(30,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
86,970
|
|
|
$
|
90,484
|
|
|
|
|
|
|
|
|
|
|
In August 2004, the Company and VFS entered into a purchase
agreement pursuant to which VFS acquired the business that
operated the ATM network being used in 7-Eleven stores for a
purchase price (including acquisition costs) of
$44.7 million of cash consideration and the
F-109
7-ELEVEN
FINANCIAL SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS(Continued)
assumption of certain contractual lease commitments and other
contracts related to the business.
The acquisition was accounted for under the purchase method. The
purchase price included the acquisition of approximately 4,500
ATM machines (as well as approximately 1,000 warehoused units,
the majority of which were sold by December 31,
2004) and the right to receive all future ATM transaction
revenue generated through both these machines and the more than
1,000
Vcomtm
machines owned by the Company before the acquisition. During the
fourth quarter of 2004, the Company finalized the purchase price
allocation and, as a result of this analysis, recorded goodwill
of $35.6 million representing the excess of purchase price
over net assets acquired. Goodwill is not subject to
amortization but has been reviewed for impairment as of
December 31, 2005 and 2006 (see Note 1). There was no
evidence of impairment in either test.
|
|
NOTE 6:
|
ACCRUED EXPENSES
AND OTHER LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Restated
|
|
|
Interest
|
|
$
|
81
|
|
|
$
|
79
|
|
Accrued advertising
|
|
|
390
|
|
|
|
432
|
|
Accrued rent
|
|
|
885
|
|
|
|
432
|
|
Deferred income
|
|
|
2,038
|
|
|
|
824
|
|
Settlement payables
|
|
|
41,180
|
|
|
|
65,808
|
|
Other
|
|
|
5,428
|
|
|
|
4,667
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,002
|
|
|
$
|
72,242
|
|
|
|
|
|
|
|
|
|
|
Settlement payables represent amounts owed to
Vcomtm
partners for cash collected on transactions at the ATM and
Vcomtm
terminals. Amounts collected are generally paid to
Vcomtm
partners one to three days after the transaction has occurred.
Other liabilities include monthly charges for cash management,
replenishment and maintenance.
|
|
NOTE 7:
|
DEFERRED CREDITS
AND OTHER LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Restated
|
|
|
Deferred income taxes
|
|
$
|
13,489
|
|
|
$
|
11,096
|
|
Deferred income
|
|
|
5,423
|
|
|
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,912
|
|
|
$
|
13,004
|
|
|
|
|
|
|
|
|
|
|
Leases Certain equipment used in the Business
is leased, generally for terms from three to 10 years. The
present value of future minimum lease payments for capital lease
obligations is reflected in the balance sheets as long-term
debt. The amount representing imputed interest necessary to
reduce net minimum lease payments to present value has been
calculated generally at the Companys incremental borrowing
rate at the inception of each lease.
F-110
7-ELEVEN
FINANCIAL SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS(Continued)
In November 2002, the Company entered into a lease facility with
a third-party institution that provided the Company with
$43.2 million in financing for
Vcomtm
equipment. The leases were accounted for as capital leases
having a five-year lease term from the date of funding, which
occurred on a monthly basis from December 2002 through June
2003. The leases bore interest at LIBOR plus 1.25%. Upon lease
termination, whether prior to or at expiration of the five-year
lease term, the Company was obligated to pay the lessor an
amount equal to the original cost of the equipment financed less
amortization to date plus accrued interest. Effective
June 30, 2006, the facility was terminated and the capital
lease assets were purchased by the Company.
Future minimum lease payments for years ending December 31 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
Leases
|
|
|
Leases
|
|
|
|
(dollars in thousands)
|
|
|
2007
|
|
$
|
1,638
|
|
|
$
|
4,016
|
|
2008
|
|
|
1,048
|
|
|
|
3,965
|
|
2009
|
|
|
755
|
|
|
|
3,837
|
|
2010
|
|
|
233
|
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments
|
|
|
3,674
|
|
|
$
|
12,043
|
|
|
|
|
|
|
|
|
|
|
Amount representing imputed interest
|
|
|
(309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of future minimum lease payments
|
|
$
|
3,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum lease payments are calculated in accordance with
SFAS No. 13, as amended. The minimum lease payments
include any base rent plus step increases and escalation
clauses, any guarantee of residual value by the Company and any
payments for failure to renew the lease. In the event the base
rent is dependent upon an index or rate that can change over the
term of the lease, the minimum lease payments are calculated
using the rate or index in effect at the inception of the lease.
Minimum lease payments do not include executory costs such as
insurance, maintenance and taxes. Minimum lease payments for
operating leases are recognized on a straight-line basis over
the term of the lease.
Rent expense on operating leases totaled $5.5 million,
$8.7 million and $7.7 million for the years ended
December 31, 2004, 2005 and 2006, respectively.
The maturities of the Companys non-cancelable capital
lease obligations as of December 31, 2006, are as follows
(dollars in thousands):
|
|
|
|
|
2007
|
|
$
|
1,465
|
|
2008
|
|
|
955
|
|
2009
|
|
|
716
|
|
2010
|
|
|
229
|
|
|
|
|
|
|
|
|
$
|
3,365
|
|
|
|
|
|
|
Profit Sharing Plans The Business
participates in all of the Companys benefit plans such as
the Profit Sharing Plan (the Plan), which provides
retirement benefits to eligible employees. Contributions to the
Plan, which is a defined contribution plan, are made by both the
participants and the Company. Effective January 1, 2006,
the Plan was amended such that the
F-111
7-ELEVEN
FINANCIAL SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS(Continued)
Companys contribution to the Plan is based on a fixed
percentage match of the participants contributions. In
prior years, the Company contributed to the Plan an amount
determined at the discretion of the Company and allocated it to
the participants based on their individual contributions and
years of participation in the Plan. Of the Companys total
contributions to the Plan, $88,000, $134,000 and $44,000 were
allocated to the Business for the years ended December 31,
2004, 2005 and 2006, respectively. These amounts are included in
OSG&A expense in the accompanying statements of earnings.
|
|
NOTE 10:
|
COMMITMENTS AND
CONTINGENCIES
|
Information Technology Under the terms of a
contract with an information technology service provider, VFS
and the Company were obligated to purchase $9.5 million of
information technology hardware and additional maintenance
services in 2006. VFS is also required in years 2007 through
2010 to purchase all of its ATM or
Vcomtm
equipment from this provider for any new or existing 7-Eleven
store for which there is not an existing ATM agreement in place
and is obligated to purchase maintenance services. The Company
met the threshold for information technology expenditures in
2006.
Under the terms of a contract with another information
technology service provider, VFS and the Company are obligated
to purchase the greater of $300,000 per month or 60% of the
average monthly charge for the immediately preceding six-month
period in information technology services through
December 31, 2009.
The provision for income tax expense on earnings in the
accompanying statements of earnings consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,613
|
)
|
|
$
|
(118
|
)
|
|
$
|
5,798
|
|
State
|
|
|
500
|
|
|
|
700
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(1,113
|
)
|
|
|
582
|
|
|
|
6,548
|
|
Deferred
|
|
|
1,815
|
|
|
|
2,454
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense on earnings
|
|
$
|
702
|
|
|
$
|
3,036
|
|
|
$
|
6,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations of income tax expense on earnings at the federal
statutory rate to the Companys actual income tax expense
are provided as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
Tax expense at federal statutory rate
|
|
$
|
635
|
|
|
$
|
2,753
|
|
|
$
|
6,144
|
|
State income tax expense, net of federal income tax benefit
|
|
|
67
|
|
|
|
283
|
|
|
|
632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
702
|
|
|
$
|
3,036
|
|
|
$
|
6,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-112
7-ELEVEN
FINANCIAL SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS(Continued)
Significant components of the Companys deferred tax assets
and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Restated
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
3,544
|
|
|
$
|
924
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(12,178
|
)
|
|
|
(9,925
|
)
|
Intangible assets and other
|
|
|
(1,311
|
)
|
|
|
(1,171
|
)
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(13,489
|
)
|
|
|
(11,096
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(9,945
|
)
|
|
$
|
(10,172
|
)
|
|
|
|
|
|
|
|
|
|
Deferred taxes consist of the following:
|
|
|
|
|
|
|
|
|
Current deferred tax assets
|
|
$
|
3,544
|
|
|
$
|
924
|
|
Noncurrent deferred tax liabilities
|
|
|
(13,489
|
)
|
|
|
(11,096
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(9,945
|
)
|
|
$
|
(10,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 12:
|
RECENTLY ISSUED
ACCOUNTING STANDARDS
|
Effective January 1, 2007, the Company will adopt the
provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (FIN 48),
which clarifies the accounting for uncertainty in income taxes
recognized in an entitys financial statements in
accordance with FASB Statement No. 109, Accounting
for Income Taxes. FIN 48 requires that an entity
recognize the benefit of a tax position only when it is more
likely than not, based on the positions technical merits,
that the position would be sustained upon examination by the
appropriate taxing authorities. The tax benefit is measured as
the largest benefit that is more than 50% likely of being
realized upon final settlement with the taxing authorities. The
Company is currently evaluating the impact of adopting
FIN 48 and anticipates that its adoption will not have a
material impact on the results of operations or financial
position of the Business.
As of December 31, 2006, the Company adopted the provisions
of SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, on
a prospective basis. SFAS No. 158, which was issued in
September 2006, requires the Company to recognize the funded
status of its Executive Protection Plan as an asset or liability
in its consolidated balance sheet. The Company is also required
to recognize as a component of other comprehensive earnings the
changes in funded status that occurred during the year that are
not recognized as part of net periodic benefit cost. The
adoption of SFAS No. 158 did not impact the
Companys results of operations for the year ended
December 31, 2006.
F-113
ATM
COMPANY
Consolidated
Financial Statements
December 31, 2002 and 2003 and June 30, 2004
(With Independent Auditors Report Thereon)
F-114
Independent
Auditors Report
To the Board of Directors
Cardtronics, Inc.:
We have audited the accompanying consolidated balance sheets of
ATM Company (as defined in footnote 1) as of
December 31, 2002 and 2003, and June 30, 2004, and the
related consolidated statements of operations,
stockholders equity (deficit), and cash flows for each of
the years in the two-year period ended December 31, 2003,
and for the six-month period ended June 30, 2004. These
consolidated financial statements are the responsibility of ATM
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purposes of expressing an opinion
on the effectiveness of ATM Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of ATM Company as of December 31, 2002 and 2003,
and June 30, 2004, and the results of its operations and
its cash flows for each of the years in the two-year period
ended December 31, 2003, and for the six-month period ended
June 30, 2004, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial
statements, ATM Company adopted the provisions of Statement of
Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations on January 1, 2003.
Houston, Texas
May 10, 2005
F-115
ATM
COMPANY
CONSOLIDATED
BALANCE SHEETS
As of December 31, 2002 and 2003 and June 30, 2004
(000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,391
|
|
|
$
|
11,081
|
|
|
$
|
9,991
|
|
Accounts receivable, net of allowance for doubtful accounts of
$614, $340, and $524, respectively
|
|
|
3,273
|
|
|
|
4,816
|
|
|
|
4,868
|
|
Notes receivable, current
|
|
|
70
|
|
|
|
30
|
|
|
|
32
|
|
Inventory
|
|
|
279
|
|
|
|
306
|
|
|
|
325
|
|
Prepaid, deferred costs and other current assets
|
|
|
411
|
|
|
|
90
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
8,424
|
|
|
|
16,323
|
|
|
|
15,351
|
|
Notes receivable, non-current
|
|
|
71
|
|
|
|
41
|
|
|
|
21
|
|
Property and equipment, net
|
|
|
13,901
|
|
|
|
14,481
|
|
|
|
18,279
|
|
Intangible assets, net
|
|
|
12,804
|
|
|
|
17,324
|
|
|
|
14,357
|
|
Goodwill, net
|
|
|
69,852
|
|
|
|
69,852
|
|
|
|
69,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
105,052
|
|
|
$
|
118,021
|
|
|
$
|
117,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,334
|
|
|
$
|
6,630
|
|
|
$
|
5,794
|
|
Payable to affiliated party
|
|
|
86,482
|
|
|
|
100,794
|
|
|
|
103,320
|
|
Accrued liabilities
|
|
|
4,901
|
|
|
|
7,588
|
|
|
|
8,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
97,717
|
|
|
|
115,012
|
|
|
|
117,371
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under capital leases
|
|
|
29
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
1,436
|
|
|
|
1,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
97,746
|
|
|
|
116,448
|
|
|
|
119,118
|
|
Stockholders equity/(deficit)
|
|
|
7,306
|
|
|
|
1,573
|
|
|
|
(1,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity/(deficit)
|
|
$
|
105,052
|
|
|
$
|
118,021
|
|
|
$
|
117,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-116
ATM
COMPANY
CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2002 and 2003 and Six
Months Ended
June 30, 2004
(000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Years Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM service revenues
|
|
$
|
97,612
|
|
|
$
|
112,530
|
|
|
$
|
55,329
|
|
ATM product revenues
|
|
|
4,644
|
|
|
|
3,511
|
|
|
|
1,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
102,256
|
|
|
|
116,041
|
|
|
|
56,905
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of ATM service revenues (exclusive of depreciation,
accretion, and amortization expense, shown separately below)
|
|
|
84,207
|
|
|
|
97,001
|
|
|
|
49,698
|
|
Cost of ATM product revenues
|
|
|
3,647
|
|
|
|
3,561
|
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
87,854
|
|
|
|
100,562
|
|
|
|
50,681
|
|
Gross profit
|
|
|
14,402
|
|
|
|
15,479
|
|
|
|
6,224
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
8,341
|
|
|
|
7,362
|
|
|
|
3,159
|
|
Depreciation and accretion expense
|
|
|
3,578
|
|
|
|
4,852
|
|
|
|
2,015
|
|
Amortization expense
|
|
|
4,829
|
|
|
|
6,185
|
|
|
|
2,835
|
|
Affiliated party expense
|
|
|
711
|
|
|
|
2,109
|
|
|
|
1,260
|
|
Restructuring expense
|
|
|
1,691
|
|
|
|
285
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
19,150
|
|
|
|
20,793
|
|
|
|
9,519
|
|
Operating loss
|
|
|
(4,748
|
)
|
|
|
(5,314
|
)
|
|
|
(3,295
|
)
|
Other (income)/expense
|
|
|
(110
|
)
|
|
|
305
|
|
|
|
(154
|
)
|
Equity in (earnings)/losses of unconsolidated affiliates
|
|
|
(96
|
)
|
|
|
(62
|
)
|
|
|
(310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and cumulative effect of change in
accounting principle
|
|
|
(4,542
|
)
|
|
|
(5,557
|
)
|
|
|
(2,831
|
)
|
Income tax provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of change in accounting principle
|
|
|
(4,542
|
)
|
|
|
(5,557
|
)
|
|
|
(2,831
|
)
|
Cumulative effect of change in accounting principle for asset
retirement obligations, net of related income tax benefit of $0
|
|
|
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,542
|
)
|
|
$
|
(5,733
|
)
|
|
$
|
(2,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-117
ATM
COMPANY
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY/(DEFICIT)
For the Years Ended December 31, 2002 and 2003 and Six
Months Ended
June 30, 2004
(000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
Balance December 31, 2001
|
|
$
|
33,812
|
|
|
$
|
(21,964
|
)
|
|
$
|
11,848
|
|
Net loss
|
|
|
|
|
|
|
(4,542
|
)
|
|
|
(4,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2002
|
|
|
33,812
|
|
|
|
(26,506
|
)
|
|
|
7,306
|
|
Net loss
|
|
|
|
|
|
|
(5,733
|
)
|
|
|
(5,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2003
|
|
|
33,812
|
|
|
|
(32,239
|
)
|
|
|
1,573
|
|
Net loss
|
|
|
|
|
|
|
(2,831
|
)
|
|
|
(2,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2004
|
|
$
|
33,812
|
|
|
$
|
(35,070
|
)
|
|
$
|
(1,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-118
ATM
COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2002 and 2003 and Six
Months Ended
June 30, 2004
(000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Years Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,542
|
)
|
|
$
|
(5,733
|
)
|
|
$
|
(2,831
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion expense
|
|
|
8,407
|
|
|
|
11,037
|
|
|
|
4,850
|
|
Provision for doubtful accounts
|
|
|
575
|
|
|
|
(59
|
)
|
|
|
416
|
|
(Gain) loss on sale of assets
|
|
|
27
|
|
|
|
684
|
|
|
|
74
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
176
|
|
|
|
|
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
78
|
|
|
|
(1,484
|
)
|
|
|
(468
|
)
|
Prepaid, deferred costs and other current assets
|
|
|
311
|
|
|
|
320
|
|
|
|
(45
|
)
|
Inventory
|
|
|
456
|
|
|
|
1,014
|
|
|
|
532
|
|
Notes receivable, net
|
|
|
(22
|
)
|
|
|
70
|
|
|
|
17
|
|
Accounts payable
|
|
|
1,301
|
|
|
|
296
|
|
|
|
(837
|
)
|
Accrued liabilities
|
|
|
(1,452
|
)
|
|
|
2,688
|
|
|
|
669
|
|
Other, net
|
|
|
(18
|
)
|
|
|
(229
|
)
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,121
|
|
|
|
8,780
|
|
|
|
2,345
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(8,439
|
)
|
|
|
(4,762
|
)
|
|
|
(5,934
|
)
|
Acquisition of merchant portfolios and equipment
|
|
|
(172
|
)
|
|
|
(11,610
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(8,611
|
)
|
|
|
(16,372
|
)
|
|
|
(5,962
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt and capital leases
|
|
|
(26
|
)
|
|
|
(29
|
)
|
|
|
|
|
Advances from affiliated party
|
|
|
6,506
|
|
|
|
14,311
|
|
|
|
2,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
6,480
|
|
|
|
14,282
|
|
|
|
2,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2,990
|
|
|
|
6,690
|
|
|
|
(1,090
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
1,401
|
|
|
|
4,391
|
|
|
|
11,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
4,391
|
|
|
$
|
11,081
|
|
|
$
|
9,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-119
ATM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1)
|
Business and
Summary of Significant Accounting Policies
|
|
|
(a)
|
Description of
Business and Basis of Presentation
|
ATM Company (the Company) owns and operates approximately 13,000
automated teller machines (ATMs) within the United States and
provides ATM management and equipment-related services to both
nationally known and small business merchant customers. The
Company typically enters into multi-year contractual
relationships with its merchant customers.
Prior to June 30, 2004, the Company conducted its business
as E*TRADE Access, Inc., a wholly owned subsidiary of E*TRADE
Bank. Effective June 30, 2004, substantially all of the
assets and liabilities of the Company were sold to Cardtronics,
Inc. (Cardtronics) with the exception of the payable to
affiliated party, which primarily represents the push-down
effects of the Companys prior acquisitions. The
consolidated financial statements presented herein reflect the
financial position and results of operations of the Company
immediately prior to the aforementioned sale.
In addition, the Company presents Cost of ATM service
revenues and Gross profit within its
consolidated statements of operations exclusive of depreciation,
accretion, and amortization. A summary of the amounts excluded
from cost of ATM service revenues and gross profit during the
years ended December 31, 2002 and 2003, and the six months
ended June 30, 2004 follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Six months
|
|
|
|
December 31,
|
|
|
Ended June 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
Depreciation and accretion related to ATMs
and ATM related assets
|
|
$
|
3,578
|
|
|
$
|
4,852
|
|
|
$
|
2,015
|
|
Amortization
|
|
|
4,829
|
|
|
|
6,185
|
|
|
|
2,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation, accretion, and amortization excluded from
cost of ATM service revenues
|
|
$
|
8,407
|
|
|
$
|
11,037
|
|
|
$
|
4,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
Principles of
Consolidation
|
The consolidated financial statements include the accounts of
the Company and its consolidated subsidiary, North American Cash
Systems (NACS). All significant accounts, transactions and
profits between the Company and NACS have been eliminated in
consolidation.
For purposes of reporting financial condition and cash flows,
cash and cash equivalents include cash in bank and short-term
deposit sweep accounts. The Company had no restricted cash
balances during the periods presented in the accompanying
financial statements.
The Company primarily relies on its agreement with Palm Desert
National Bank (PDNB) to provide it with all of the cash that it
uses in its ATMs, and for which cash is not provided by the
merchant. Such cash is provided by E*TRADE Bank to PDNB under a
separate agreement between the two parties, and is referred to
as vault cash under federal banking regulations. The
Company pays a fee for its usage of this cash based on the total
amount of the cash that it is using at any given time. At all
times during the use of this cash, it belongs to the cash
F-120
ATM COMPANY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
provider, and the cash provider has the right to demand the
return of all or any portion of the cash at any time upon the
occurrence of certain events beyond the Companys control.
The amount of vault cash in the Companys ATMs was
approximately $122.0 million and $92.5 million at
December 31, 2003 and June 30, 2004, respectively.
Accounts receivable are primarily comprised of amounts due from
the Companys clearing and settlement banks for ATM
transaction revenues earned on transactions processed during the
month ending on the balance sheet date. Trade accounts
receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the
Companys best estimate of the amount of probable credit
losses in the Companys existing accounts receivable. The
Company reviews its allowance for doubtful accounts monthly and
determines the allowance based on an analysis of its past due
accounts. Account balances are charged off against the allowance
after all means of collection have been exhausted and the
potential for recovery is considered remote.
The Companys note receivable balance relates to an ATM
financing arrangement with a term beyond one year. Such note
bears interest at approximately 13%, which is being recognized
over the life of the note. The ATMs that are financed pursuant
to this arrangement serve as collateral for the related note.
Inventory consists principally of ATMs and, to a lesser extent,
ATM spare parts and ATM supplies. Inventory items are stated at
the lower of cost or market, and cost is determined by the
specific identification method.
|
|
(h)
|
Property and
Equipment, net
|
Equipment is stated at cost and depreciation is calculated using
the straight-line method over an estimated useful life of five
years. Also included in equipment are new ATMs the Company has
acquired for future installation. Such ATMs are held as
deployments in process and are not depreciated until placed in
service. Depreciation expense for equipment for the years ended
December 31, 2002 and 2003, and for the six months ended
June 30, 2004, was $3.6 million, $4.9 million,
and $2.0 million, respectively. See Note 9 regarding
asset retirement obligations associated with the Companys
ATMs.
|
|
(i)
|
Goodwill and
Other Intangible Assets, net
|
Goodwill and other intangible assets, net, represent the excess
of the purchase price over the fair value of net tangible assets
acquired through the Companys previous asset and business
combinations. The goodwill balance was created in connection
with the Companys acquisition of Card Capture Services,
Inc. (CCS) in May 2000 (see Note 2). Intangible assets,
other than goodwill, are primarily comprised of merchant
contracts/relationships acquired in connection with acquisitions
of selected ATM assets (i.e., the right to receive future cash
flows related to ATM transactions occurring at these merchant
locations).
For the periods prior to January 1, 2002, goodwill was
amortized using the straight-line method based on an estimated
useful life of 40 years. Upon adoption of Statement of
Financial
F-121
ATM COMPANY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets (SFAS 142) on January 1, 2002,
the Company ceased the amortization of goodwill and tested the
carrying amount for impairment. No adjustment was made to the
carrying value of the goodwill balance as a result of such
impairment test. The Company tests goodwill for impairment on at
least an annual basis.
Intangible assets related to acquired merchant
contracts/relationships are amortized on a straight-line basis
over estimated useful lives ranging from five to seven years.
Such estimated useful lives were determined by the Company based
on a review of the weighted average life of the expected
after-tax cash flows from the underlying merchant contracts and
the terms of the contracts themselves, as well as the
Companys expectations based on industry experience. The
Company evaluates the remaining useful lives of other intangible
assets each reporting period to determine whether events and
circumstances warrant a revision to the remaining period of
amortization.
During the years ended December 31, 2002 and 2003, and for
the six months ended June 30, 2004, the Company recorded
amortization expense related to its intangible assets of
$4.8 million, $6.2 million, and $2.8 million,
respectively. The estimated amortization expense for each of the
five succeeding years is not applicable as the Companys
intangible assets were revalued in connection with the
Cardtronics acquisition, as mentioned above.
The Company accounts for income taxes pursuant to the provisions
of SFAS No. 109, Accounting for Income Taxes
(SFAS 109). Provisions for income taxes 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 provision for income taxes and between the tax
basis of assets and liabilities and their reported amounts in
the financial statements. Deferred tax assets and liabilities
are calculated based on current statutory federal and state
income tax rates. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the
provision for income taxes.
For the periods presented herein, the Companys predecessor
(E*TRADE Access, Inc.) was part of the consolidated tax group of
E*TRADE Financial Corporation, the parent company of E*TRADE
Bank, and shared in (and contributed to) the consolidated tax
benefits and obligations of the group. However, the income tax
amounts presented in these financial statements and related
footnotes have been computed assuming that the Company was not
part of such consolidated tax group, but rather had prepared
separate income tax returns for the periods presented. See
Note 12 for more details regarding the Companys
income tax related amounts.
|
|
(k)
|
Impairment of
Long-Lived Assets
|
The Company places significant value on the installed ATMs that
it owns and manages in merchant locations and the underlying
merchant contracts/relationships. The recoverability of the
carrying value of long-lived assets is reviewed whenever events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. To assess recoverability, the
Company evaluates the carrying value of long-lived assets and
compares them to the respective projected future undiscounted
cash flows. An impairment loss is recognized if the sum of the
expected net cash flows is less than the carrying amount of the
long-lived assets being evaluated. The Company does not believe
that any impairment of its intangibles or other long-lived
assets has occurred.
F-122
ATM COMPANY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
(l)
|
Use of
Estimates in the Preparation of Financial
Statements
|
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires the Company to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Significant items subject to such estimates include the carrying
amount of intangibles and valuation allowances for receivables,
inventories and deferred income tax assets. Actual results could
differ from those assumed in the Companys estimates.
Substantially all of the Companys revenues are generated
from ATM transaction-based fees and services, which include
surcharge fees, interchange fees and other monthly fees.
Transaction-based fees are recognized at the time the ATM
transactions are processed and service fees are recognized at
the time the service is performed. The Company offers a
maintenance service agreement to certain customers purchasing
ATMs. The Company recognizes service agreement revenue monthly
as earned, and expenses relating to repairs under service
agreements as incurred. The Company recognizes revenue related
to the sale of ATMs when the equipment is delivered to the
merchant customer and the Company has completed all required
installation and
set-up
procedures. If the equipment is sold directly to a third-party
dealer, the Company recognizes revenue upon the shipment of the
equipment from the manufacturer to the third-party dealer.
|
|
(n)
|
Stock-Based
Compensation
|
The Company has not had, and does not currently have, any
stock-based compensation plans in place. However, certain
employees of the Companys predecessor participated in the
stock-based compensation plan sponsored by E*TRADE Financial
Corporation.
The Company has elected to account for its participation in the
above-mentioned stock-based compensation plan using the
intrinsic value method under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and to
disclose pro forma effects on net loss as provided by the
provisions of SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure and
SFAS No. 123, Accounting for Stock-Based Compensation
(SFAS 123). Accordingly, no compensation cost for stock
options held by employees of the Company has been recognized.
Had compensation cost for stock options been determined based on
the fair value at the grant dates in 2002, 2003 and 2004,
consistent with the provisions of SFAS 123, the recorded
net loss amounts would have been increased by approximately
$118,000, $63,000 and $8,000, respectively.
For disclosure purposes, the fair value of each stock option
granted was estimated on the date of grant using the
Black-Scholes option-pricing model. The fair value of the
options granted for the years ended December 31, 2002 and
2003, and for the six months ended June 30, 2004, were
$6.09, $2.89, and $5.80, respectively. The fair value of the
Companys
F-123
ATM COMPANY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
participation in the above-referenced stock-based compensation
plan was estimated assuming no expected dividends and the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Expected stock price volatility
|
|
|
71
|
%
|
|
|
66
|
%
|
|
|
52
|
%
|
Risk-free interest rate
|
|
|
4
|
%
|
|
|
3
|
%
|
|
|
2
|
%
|
Expected life of options following vesting (in months)
|
|
|
36
|
|
|
|
19
|
|
|
|
22
|
|
|
|
(o)
|
Recent
Accounting Pronouncements
|
In June 2001, the Financial Accounting Standards Board (the
FASB) issued SFAS No. 143, Accounting for Asset
Retirement Obligations (SFAS 143). SFAS 143 addresses
financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the
related asset retirement costs. SFAS 143 requires the
Company to estimate the fair value of future retirement costs
associated with its ATMs. The fair value of a liability for an
asset retirement obligation is to be recognized in the period in
which it is incurred and can be reasonably estimated. Such asset
retirement costs are to be 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 will generally
involve discounted future cash flows. Periodic accretion of such
liabilities due to the passage of time is to be recorded as an
operating expense. The provisions of SFAS 143 are effective
for fiscal years beginning after June 15, 2002, with
initial application as of the beginning of the fiscal year. The
adoption of SFAS 143 resulted in the recognition of:
(i) liabilities amounting to approximately
$1.0 million for contingent retirement obligations under
certain merchant contracts (included in other long-term
liabilities on the Companys consolidated balance sheet);
(ii) asset retirement costs amounting to approximately
$1.0 million (included in property and equipment on the
Companys consolidated balance sheet); and (iii) a
charge for the cumulative effect of the change in accounting
principle amounting to approximately $176,000. The cumulative
effect amount of $176,000 has not been reduced by a related
income tax benefit due to the uncertain future utilization of
such benefit. Accretion expense related to liabilities for
contingent retirement obligations (included in depreciation and
accretion on the Companys consolidated statements of
operations) totaled approximately $86,000 for the year ended
December 31, 2003, and approximately $54,000 for the six
months ended June 30, 2004, respectively. At
December 31, 2003 and June 30, 2004, liabilities for
contingent retirement obligations amounted to $1.4 million
and $1.7 million, respectively.
In May 2000, E*TRADE Access, Inc. (the Companys
predecessor) was formed through the acquisition of CCS by
E*TRADE Financial Corporation. The purchase price totaled
approximately $100.8 million and was comprised of
$5.0 million in cash, approximately $87.5 million in
stock of E*TRADE Financial Corporation, the assumption of
approximately $6.8 million in debt, and the incurrence of
approximately $1.5 million in direct costs associated with
the
F-124
ATM COMPANY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
acquisition. The following table summarizes the estimated fair
values of the major assets acquired and liabilities assumed at
the date of the acquisition (000s):
|
|
|
|
|
|
|
Estimated
|
|
Category
|
|
Fair Value
|
|
|
Net working capital
|
|
$
|
575
|
|
Property and equipment
|
|
|
3,622
|
|
Other assets
|
|
|
875
|
|
|
|
|
|
|
Total tangible assets
|
|
|
5,072
|
|
Intangible assets
|
|
|
22,860
|
|
Goodwill
|
|
|
72,889
|
|
|
|
|
|
|
Total net assets acquired
|
|
$
|
100,821
|
|
|
|
|
|
|
The $22.9 million in intangible assets primarily represents
the value assigned to the acquired merchant
contracts/relationships, as determined by an independent
appraisal specialist. Such amount is being amortized on a
straight-line basis over an estimated useful life of seven
years. The $72.9 of goodwill was being amortized over an
estimated useful life of 40 years prior to the adoption of
SFAS 142. On January 1, 2002, the Company ceased the
amortization of such goodwill balance in accordance with the
provisions of SFAS 142.
During 2002, the Company acquired a total of 28 merchant
contracts/relationships in a series of separate transactions.
The cost of the acquisitions totaled approximately
$0.2 million and the purchase price was allocated entirely
to the acquired merchant contracts/relationships. No ATMs were
acquired in such transactions. Total consideration paid
represented the fair value of the acquired intangible assets as
of the acquisition dates.
During 2003, the Company acquired a total of over 5,000 merchant
contracts/relationships and over 240 ATMs through a series of
separate asset acquisitions. The cost of the acquisitions
totaled $11.6 million and the purchase price was allocated
$0.9 million to ATM equipment and $10.7 million to
merchant contracts/relationships. Of the $11.6 million paid
in 2003 for such acquisitions, approximately $10.1 million
related to the Companys acquisition of selected contracts
and ATMs from XtraCash ATM, Inc. Total consideration paid
represented the fair value of the acquired assets as of the
acquisition dates.
The Company made no significant acquisitions during the first
six months of 2004.
|
|
(3)
|
Affiliated Party
Transactions
|
Prior to the acquisition by Cardtronics of the Company, E*TRADE
Bank provided certain services to E*TRADE Access, Inc. (the
Companys predecessor) under a service agreement, including
insurance and risk management services, tax and financial
reporting services, and payroll processing services. E*TRADE
Bank also provided use of its office space, equipment and
furniture and fixtures. The accompanying financial statements
reflect charges from E*TRADE Bank for such services in the
amounts of $0.7 million, $2.1 million, and
$1.3 million for the years ended December 31, 2002 and
2003, and for the six months ended June 30, 2004,
respectively. Amounts owed to E*TRADE Bank for such services,
including the push-down effects of the Companys historical
acquisitions, totaled $86.5 million, $100.8 million,
and $103.3 million as of December 31, 2002 and 2003,
and June 30, 2004, respectively.
F-125
ATM COMPANY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
(4)
|
Prepaid, Deferred
Costs, and Other Current Assets
|
A summary of prepaid, deferred costs, and other current assets
is as follows (000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Prepaids
|
|
$
|
404
|
|
|
$
|
90
|
|
|
$
|
71
|
|
Deferred costs and other current assets
|
|
|
7
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
411
|
|
|
$
|
90
|
|
|
$
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
Property and
Equipment, net
|
A summary of property and equipment is as follows (000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Property and equipment
|
|
$
|
19,369
|
|
|
$
|
23,923
|
|
|
$
|
29,301
|
|
Software
|
|
|
1,906
|
|
|
|
2,322
|
|
|
|
2,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
21,275
|
|
|
|
26,245
|
|
|
|
31,636
|
|
Less accumulated depreciation
|
|
|
(7,374
|
)
|
|
|
(11,764
|
)
|
|
|
(13,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$
|
13,901
|
|
|
$
|
14,481
|
|
|
$
|
18,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
Intangible
Assets, net
|
A summary of intangible assets is as follows (000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
As of December 31,
|
|
|
June 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Merchant contracts
|
|
$
|
22,715
|
|
|
$
|
30,985
|
|
|
$
|
29,893
|
|
Less accumulated amortization
|
|
|
(9,911
|
)
|
|
|
(13,661
|
)
|
|
|
(15,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net intangible assets
|
|
$
|
12,804
|
|
|
$
|
17,324
|
|
|
$
|
14,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-126
ATM COMPANY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The Companys accrued liabilities include accrued armored
fees, communication fees, maintenance obligations, and other
fees associated with the Companys ongoing operations. A
summary of the Companys accrued liabilities as of the
dates below is as follows (000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
As of December 31,
|
|
|
June 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Restructuring accrual
|
|
$
|
1,500
|
|
|
$
|
1,559
|
|
|
$
|
1,706
|
|
Accrued armored fees
|
|
|
843
|
|
|
|
991
|
|
|
|
920
|
|
Accrued communication fees
|
|
|
426
|
|
|
|
424
|
|
|
|
|
|
Accrued maintenance fees
|
|
|
306
|
|
|
|
343
|
|
|
|
1,352
|
|
Accrued bank and cash management fees
|
|
|
97
|
|
|
|
2,141
|
|
|
|
951
|
|
Accrued ATM purchases
|
|
|
|
|
|
|
|
|
|
|
577
|
|
Accrued sales and property taxes
|
|
|
|
|
|
|
|
|
|
|
304
|
|
Other accrued expenses
|
|
|
1,729
|
|
|
|
2,130
|
|
|
|
2,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,901
|
|
|
$
|
7,588
|
|
|
$
|
8,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8)
|
Commitments and
Contingencies
|
The following table and discussion reflect the Companys
significant contractual obligations and other commercial
commitments as of December 31, 2003 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Operating lease obligations
|
|
$
|
2,920
|
|
|
$
|
1,188
|
|
|
$
|
1,174
|
|
|
$
|
523
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously mentioned, the Company is charged by E*TRADE Bank
for the use of its office space, and as such, has no separate
contractual lease agreement in place. Accordingly, there are no
contractual rent payment amounts included in the table above.
|
|
(9)
|
Asset Retirement
Obligations
|
The Company changed its method of accounting for asset
retirement obligations in accordance with SFAS 143
effective January 1, 2003. Under SFAS 143, the Company
recognizes asset retirement obligations in the period in which
they are incurred if a reasonable estimate of the fair value can
be made. When the liability is initially recorded, the cost is
capitalized by increasing the carrying amount of the related
long-lived asset. Over time, the liability is accreted to its
settlement value and the capitalized cost is depreciated over
the useful life of the related asset. Upon settlement of the
liability, a gain or loss is recorded for any difference between
the settlement amount and the liability recorded.
The cumulative effect of the change on prior years resulted in
an after-tax charge to income of approximately $176,000. The
effect of the change in 2003 was to decrease income before the
cumulative effect of the accounting changes by approximately
$74,000 related to depreciation and accretion expense recorded
during the period, offset somewhat by the utilization of the
established asset retirement obligation. The pro forma effects
of the application of SFAS 143 as if the statement had been
adopted on January 1, 2002 (instead of
F-127
ATM COMPANY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
January 1, 2003) are presented below (pro forma
amounts in thousands assuming the accounting change is applied
retroactively, net of tax):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
Net loss
|
|
$
|
(4,542
|
)
|
|
$
|
(5,733
|
)
|
(Increase) decrease in depreciation expense
|
|
|
(130
|
)
|
|
|
130
|
|
(Increase) decrease in accretion expense
|
|
|
(46
|
)
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Net loss, as adjusted
|
|
$
|
(4,718
|
)
|
|
$
|
(5,557
|
)
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations consist primarily of
de-installation costs of the ATM and the costs to restore the
ATM site to its original condition. The Company is legally
required to perform this de-install and restoration work. In
accordance with SFAS 143, for each group of ATMs the
Company recognized the fair value of a liability for an asset
retirement obligation and capitalized that cost as part of the
cost basis of the related asset. The related assets are being
depreciated on a straight-line basis over five years.
The following table describes changes to the asset retirement
obligation liability for the year ended December 31, 2003
and the six months ended June 30, 2004 (000s):
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Asset retirement at the beginning of the year
|
|
$
|
1,016
|
|
|
$
|
1,436
|
|
Additional ATMs
|
|
|
602
|
|
|
|
257
|
|
Accretion expense
|
|
|
86
|
|
|
|
54
|
|
Payments
|
|
|
(268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,436
|
|
|
$
|
1,747
|
|
|
|
|
|
|
|
|
|
|
The actual and pro forma asset retirement obligation liability
balances as if SFAS 143 had been adopted on January 1,
2002 (instead of January 1, 2003) were as follows
(000s):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
Liability for asset retirementbeginning
|
|
|
|
|
|
$
|
1,016
|
|
Liability for asset retirementending
|
|
$
|
1,016
|
|
|
$
|
1,436
|
|
The Company is involved in various lawsuits and legal
proceedings which have arisen in the normal course of business.
While the ultimate results of these other matters cannot be
predicted with certainty, they are not expected to have a
material adverse effect on the financial position of the Company.
As discussed in Note 1, the Companys income taxes
have been computed assuming that the Company was not part of the
E*TRADE Financial Corporation consolidated tax group, but rather
had prepared separate income tax returns for the periods
presented. Accordingly, the Company has not reflected a tax
benefit for any of the periods presented in the accompanying
F-128
ATM COMPANY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
financial statements due to the uncertainties surrounding the
ability of the Company to utilize such benefits.
The recorded income tax benefit differs from amounts computed by
applying the statutory rate to the Companys net loss
before taxes as follows for the years ended December 31,
2002 and 2003, and the six months ended June 30, 2004
(000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Years Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Income tax benefit at the statutory rate of 35%
|
|
$
|
(1,590
|
)
|
|
$
|
(2,007
|
)
|
|
$
|
(991
|
)
|
State tax benefit, net of federal provision
|
|
|
(177
|
)
|
|
|
(224
|
)
|
|
|
(110
|
)
|
Non-deductible meals and entertainment
|
|
|
9
|
|
|
|
3
|
|
|
|
2
|
|
Change in valuation allowance
|
|
|
1,758
|
|
|
|
2,228
|
|
|
|
1,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit on loss before income taxes and cumulative
effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax allocated to cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit per financial statements
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2002 and 2003, and
June 30, 2004, are as follows (000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Current deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
630
|
|
|
$
|
83
|
|
|
$
|
84
|
|
Reserve for doubtful accounts
|
|
|
370
|
|
|
|
347
|
|
|
|
507
|
|
Other
|
|
|
17
|
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets
|
|
|
1,017
|
|
|
|
448
|
|
|
|
609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
3,329
|
|
|
|
4,941
|
|
|
|
5,571
|
|
Net operating loss carryforwards
|
|
|
10,534
|
|
|
|
14,690
|
|
|
|
17,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets
|
|
|
13,863
|
|
|
|
19,631
|
|
|
|
22,929
|
|
Non-current deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
1,698
|
|
|
|
2,752
|
|
|
|
4,092
|
|
Amortization of goodwill
|
|
|
3,859
|
|
|
|
5,750
|
|
|
|
6,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax liabilities
|
|
|
5,557
|
|
|
|
8,502
|
|
|
|
10,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax assets
|
|
$
|
8,306
|
|
|
$
|
11,129
|
|
|
$
|
12,142
|
|
Net current deferred tax assets
|
|
|
1,017
|
|
|
|
448
|
|
|
|
609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
9,323
|
|
|
|
11,577
|
|
|
|
12,751
|
|
Less: Valuation allowance
|
|
|
(9,323
|
)
|
|
|
(11,577
|
)
|
|
|
(12,751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-129
ATM COMPANY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
A valuation allowance has been provided to offset the deferred
tax assets for all periods presented due to the uncertainties
surrounding the future realization of such deferred tax assets.
As of June 30, 2004, the Companys estimated net
operating loss (NOL) carryforwards for income tax
purposes, assuming it had filed separate returns for the periods
presented, would have totaled approximately $40.1 million.
Approximately $1.8 million of the valuation allowance for
deferred tax assets at June 30, 2004, relates to items
which, when recognized, would have resulted in a credit to
equity rather than a reduction in the Companys federal
income tax provision.
|
|
(12)
|
Significant
Suppliers
|
The Company incurred charges from one supplier that accounted
for approximately 10% of the total cost of revenues for the
years ended December 31, 2002 and 2003, and the six months
ended June 30, 2004.
|
|
(13)
|
Segment
Information and Geographical Information
|
The Company considers its business activities to be comprised of
a single reporting segmentATM Management Services. During
each of the periods presented in the accompanying consolidated
financial statements, the Company had no single merchant
customer that represented 10% or more of total revenues. All
revenues were generated in the United States of America.
|
|
(14)
|
Acquisition by
Cardtronics, Inc.
|
As disclosed in Note 1, substantially all of the assets and
liabilities of E*TRADE Access, Inc. (the Companys
predecessor), with the exception of the payable to affiliated
party, were acquired and assumed by Cardtronics, Inc. effective
June 30, 2004, for approximately $106.9 million in
cash.
F-130
You should rely only on the information contained in this
prospectus or to which we have referred you, including any free
writing prospectus that we file with the SEC relating to this
offering. We and the selling shareholders have not authorized
any other person to provide you with different information. We
and the selling shareholders are only offering to sell, and
seeking offers to buy, the common stock in jurisdictions where
offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. Our business,
financial condition, results of operations and prospects may
have changed since that date.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
1
|
|
|
|
|
15
|
|
|
|
|
32
|
|
|
|
|
33
|
|
|
|
|
33
|
|
|
|
|
34
|
|
|
|
|
35
|
|
|
|
|
36
|
|
|
|
|
38
|
|
|
|
|
40
|
|
|
|
|
45
|
|
|
|
|
54
|
|
|
|
|
98
|
|
|
|
|
103
|
|
|
|
|
119
|
|
|
|
|
140
|
|
|
|
|
145
|
|
|
|
|
149
|
|
|
|
|
153
|
|
|
|
|
156
|
|
|
|
|
160
|
|
|
|
|
166
|
|
|
|
|
166
|
|
|
|
|
166
|
|
|
|
|
F-1
|
|
Through and
including ,
2008 (25 days after the date of this prospectus), all
dealers that effect transaction in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as an underwriter and with
respect to unsold allotments or subscriptions.
Cardtronics, Inc.
12,000,000 Shares
Common Stock
Deutsche Bank
Securities
William Blair &
Company
Banc of America Securities
LLC
JPMorgan
Piper Jaffray
RBC Capital Markets
Prospectus
,
2007
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other Expenses
of Issuance and Distribution
|
The expenses of this offering, other than underwriting discount,
are estimated to be as follows:
|
|
|
|
|
SEC registration fee
|
|
$
|
9,210
|
|
NASD filing fee
|
|
|
31,167
|
|
Nasdaq Global Market listing fee
|
|
|
120,000
|
|
Legal fees and expenses
|
|
|
600,000
|
|
Accounting fees and expenses
|
|
|
300,000
|
|
Blue Sky fees and expenses (including legal fees)
|
|
|
*
|
|
Printing expenses
|
|
|
400,000
|
|
Transfer agent fees
|
|
|
25,000
|
|
Miscellaneous
|
|
|
14,623
|
|
|
|
|
|
|
Total
|
|
$
|
1,500,000
|
|
|
|
|
|
|
|
|
Item 14.
|
Indemnification
of Directors and Officers
|
Section 145 of the General Corporation Law of the State of
Delaware (the DGCL) authorizes a corporation, under
certain circumstances, to indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact
that the person is or was an officer or director of such
corporation, or is or was serving at the request of that
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such
action, suit or proceeding, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the
best interests of the corporation. With respect to any criminal
action or proceeding, such indemnification is available if he
had no reasonable cause to believe his conduct was unlawful.
The registrants third amended and restated certificate of
incorporation, as amended (the Certificate of
Incorporation), together with the registrants
amended and restated bylaws, as amended (the
Bylaws), provide for indemnification of each person
who is or was made a party to any actual or threatened civil,
criminal, administrative or investigative action, suit or
proceeding because such person is, was or has agreed to become
an officer or director of the registrant or is a person who is
or was serving or has agreed to serve at the request of the
registrant as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of
another corporation or of a partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise
to the fullest extent permitted by the DGCL as it existed at the
time the indemnification provisions of the Certificate of
Incorporation and Bylaws were adopted or as may be thereafter
amended. The Certificate of Incorporation and the Bylaws
expressly provide that it is not the exclusive method of
indemnification.
Section 145 of the DGCL also empowers a corporation to
purchase and maintain insurance on behalf of any person who is
or was an officer or director of such corporation against
liability asserted against or incurred by him in any such
capacity, whether or not such corporation would have the power
to indemnify such officer or director against such liability
under the provisions of Section 145.
II-1
The Certificate of Incorporation and the Bylaws also provide
that the registrant may maintain insurance, at the
registrants expense, to protect the registrant and any
director, officer, employee or agent of the registrant or of
another entity against any expense, liability, or loss,
regardless of whether the registrant would have the power to
indemnify such person against such expense, liability or loss
under the DGCL.
Section 102(b)(7) of the DGCL provides that a certificate
of incorporation may contain a provision eliminating or limiting
the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a director, provided that such provision shall not eliminate
or limit the liability of a director (a) for any breach of
the directors duty of loyalty to the corporation or its
stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law, (c) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or
dividends on, capital stock) or (d) for any transaction
from which the director derived improper personal benefit.
Article Twelfth of the Certificate of Incorporation
contains such a provision.
The underwriting agreement to be entered into in connection with
this offering will provide that the Underwriters shall indemnify
the Company, its directors and certain officers of the Company
against liabilities resulting from information furnished by or
on behalf of the Underwriters specifically for use in the
Registration Statement. See Item 17.
Undertakings for a description of the Securities and
Exchange Commissions position regarding such
indemnification provisions.
|
|
Item 15.
|
Recent Sales
of Unregistered Securities
|
During the past three years, we have issued unregistered
securities to the persons described below. None of these
transactions involved any underwriters or any public offerings,
and we believe that each of these transactions was exempt from
registration requirements pursuant to Section 3(a)(9) or
Section 4(2) of the Securities Act of 1933, as amended,
Regulation D promulgated thereunder or Rule 701 of the
Securities Act of 1933 pursuant to compensatory benefit plans
and contracts related to compensation as provided under
Rule 701. The recipients of the securities in these
transactions represented their intention to acquire the
securities for investment only and not with a view to or for
sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and
instruments issued in these transactions. The share numbers
presented below do not give effect to the stock split described
in the prospectus.
During the fiscal year ended December 31, 2004, we issued
(1) 3,446 shares of our common stock to Ralph Clinard
upon the exercise of options held by Mr. Clinard for an
aggregate price of $40,421.58, (2) 3,217 shares of our
common stock to Douglas Deitel upon the exercise of options held
by Mr. Deitel for an aggregate price of $18,883.79,
(3) 1,313 shares of our common stock to Ron Coben upon
the exercise of options held by Mr. Coben for an aggregate
price of $15,401.49, and (4) 1,233 shares of our
common stock to Frederick Boyd upon the exercise of options held
by Mr. Boyd for an aggregate price of $246.60. In addition,
during the fiscal year ended December 31, 2004, we granted
options to our employees to purchase 109,500 shares of
common stock at a non-stock split adjusted exercise price of
$52.00.
During the fiscal year ended December 31, 2005, we issued
(1) 894,568 shares of our Series B Convertible
Preferred Stock to investment funds controlled by TA Associates,
Inc. for aggregate gross proceeds of $75.0 million,
(2) 35,221 shares of our Series B Convertible
Preferred Stock as partial consideration for our acquisition of
Bank Machine, which were valued at $3.0 million, and
(3) 21,111 shares of our common stock as partial
consideration for our acquisition of the outstanding shares of
ATM National, Inc., which were valued at $1.8 million. In
addition, during the fiscal year ended December 31, 2005,
we granted options to our employees to purchase
210,500 shares of common stock at a non-stock split
adjusted exercise price of $83.84.
II-2
During the fiscal year ended December 31, 2006, we issued
4,703 shares of common stock to Sandra Menjivar upon the
exercise of options held by Ms. Menjivar for an aggregate
price of $188.12. Additionally, during the fiscal year ended
December 31, 2006, we granted options to certain of our
employees to purchase 97,500 shares of common stock at a
non-stock split adjusted exercise price of $83.84.
During the eleven months ended November 30, 2007, we issued
3,937 shares of common stock to Ron Coben upon the exercise
of options held by Mr. Coben for an aggregate price of
$46,181.01. Additionally, during the eleven months ended
November 30, 2007, we granted options to certain of our
employees to purchase 143,500 shares of common stock at a
weighted average, non-stock split adjusted exercise price of
$96.61.
|
|
Item 16.
|
Exhibits and
Financial Statement Schedules
|
(a) Exhibits:
Reference is made to the Index to Exhibits following the
signature pages hereto, which Index to Exhibits is hereby
incorporated into this Item.
(b) Consolidated Financial Statement Schedules:
All schedules are omitted because the required information is
inapplicable or the information is presented in the Consolidated
Financial Statements and the related notes.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that,
in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) for purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreements, certificates in such denominations and registered in
such names and required by the underwriter to permit prompt
delivery to each purchaser.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on the
10th
day of December, 2007.
CARDTRONICS, INC.
Jack Antonini
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities indicated on the
10th
day of December, 2007.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
* Jack
Antonini
|
|
Chief Executive Officer, President, and Director (Principal
Executive Officer)
|
|
|
|
/s/ J.
Chris
Brewster J.
Chris Brewster
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
* Fred
R. Lummis
|
|
Director and Chairman of the Board of Directors
|
|
|
|
* Robert
P. Barone
|
|
Director
|
|
|
|
* Frederick
W. Brazelton
|
|
Director
|
|
|
|
* Ralph
H. Clinard
|
|
Director
|
|
|
|
* Jorge
M. Diaz
|
|
Director
|
|
|
|
* Roger
B. Kafker
|
|
Director
|
|
|
|
* Michael
A.R. Wilson
|
|
Director
|
|
|
|
* Ronald
Delnevo
|
|
Director
|
|
|
|
*By: /s/ J.
Chris
Brewster J.
Chris Brewster Attorney-in-Fact
|
|
|
II-4
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
1
|
.1*
|
|
Form of Underwriting Agreement
|
|
2
|
.1
|
|
Share Sale and Purchase Agreement between Bank Machine
(Holdings) Limited and Cardtronics Limited, dated effective as
of May 17, 2005 (incorporated herein by reference to
Exhibit 2.1 of the Amendment No. 1 to Registration
Statement on
Form S-4/A,
filed by Cardtronics, Inc. on July 10, 2006, Registration
No. 333-131199).
|
|
2
|
.2
|
|
Purchase and Sale Agreement Between E*TRADE Access, Inc.,
E*TRADE Bank, Cardtronics, LP and Cardtronics, Inc., dated
effective as of June 2, 2004 (incorporated herein by
reference to Exhibit 2.2 of the Amendment No. 1 to
Registration Statement on
Form S-4/A,
filed by Cardtronics, Inc. on July 10, 2006, Registration
No. 333-131199).
|
|
2
|
.3
|
|
Purchase and Sale Agreement, dated as of July 20, 2007, by
and between Cardtronics, LP and 7-Eleven, Inc. (incorporated
herein by reference to Exhibit 10.1 of the Current Report
on
Form 8-K
filed on July 26, 2007).
|
|
3
|
.1***
|
|
Form of Third Amended and Restated Certificate of Incorporation
of Cardtronics, Inc.
|
|
3
|
.2***
|
|
Form of Second Amended and Restated Bylaws of Cardtronics, Inc.
|
|
4
|
.1
|
|
Indenture dated as of July 20, 2007 among Cardtronics,
Inc., the Subsidiary Guarantors party thereto, and Wells Fargo
Bank, N.A. as Trustee (incorporated herein by reference to
Exhibit 4.1 of the Quarterly Report on
Form 10-Q
filed on August 14, 2007).
|
|
4
|
.2
|
|
Indenture dated as of August 12, 2005 by and among
Cardtronics, Inc., the Subsidiary Guarantors party thereto and
Wells Fargo Bank, NA as Trustee (incorporated herein by
reference to Exhibit 4.1 of the Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
4
|
.3
|
|
Registration Rights Agreement dated as of July 20, 2007
among Cardtronics, Inc., the Guarantors named therein, Banc of
America Securities, LLC and BNP Paribas Securities Corp.
(incorporated herein by reference to Exhibit 4.2 of the
Quarterly Report on
Form 10-Q
filed on August 14, 2007).
|
|
4
|
.4
|
|
Supplemental Indenture dated as of June 22, 2007 among
Cardtronics Holdings, LLC and Wells Fargo Bank, N.A. as Trustee
(incorporated herein by reference to Exhibit 4.3 of the
Quarterly Report on
Form 10-Q
filed on August 14, 2007).
|
|
4
|
.5
|
|
Supplemental Indenture dated as of December 22, 2005 among
ATM National, LLC and Wells Fargo Bank, N.A. as Trustee
(incorporated herein by reference to Exhibit 4.4 of the
Quarterly Report on
Form 10-Q
filed on August 14, 2007).
|
|
4
|
.6
|
|
Form of Senior Subordinated Note (incorporated by reference to
Exhibit A to Exhibit 4.2 hereto).
|
|
4
|
.7
|
|
Registration Rights Agreement dated as of August 12, 2005
by and among Cardtronics, Inc., the Subsidiary Guarantors party
thereto and the Initial Purchasers party thereto (incorporated
herein by reference to Exhibit 4.3 of the Registration
Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
5
|
.1*
|
|
Opinion of Vinson & Elkins L.L.P.
|
|
10
|
.1
|
|
ATM Cash Services Agreement between Bank of America and
Cardtronics, LP, dated effective as of August 2, 2004
(incorporated herein by reference to Exhibit 10.1 of the
Amendment No. 2 to Registration Statement on
Form S-4/A
filed by Cardtronics, Inc. on August 25, 2006, Registration
No. 333-131199).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.2
|
|
Third Amended and Restated First Lien Credit Agreement, dated as
of May 17, 2005, by and among Cardtronics, Inc., the
Subsidiary Guarantors party thereto, Bank of America, N.A., BNP
Paribas, and the other Lenders parties thereto (incorporated
herein by reference to Exhibit 10.2 of the Registration
Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.3
|
|
Amendment No. 1 to Credit Agreement, dated as of
July 6, 2005 (incorporated herein by reference to
Exhibit 10.3 of the Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.4
|
|
Amendment No. 2 to Credit Agreement, dated as of
August 5, 2005 (incorporated herein by reference to
Exhibit 10.4 of the Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.5
|
|
Amendment No. 3 to Credit Agreement, dated as of
November 17, 2005 (incorporated herein by reference to
Exhibit 10.5 of the Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.6
|
|
Employment Agreement between Cardtronics, LP and Jack M.
Antonini, dated effective as of January 30, 2003
(incorporated by reference to Exhibit 10.10 of the
Registration Statement on
Form S-1
filed by Cardtronics, Inc. on March 10, 2004, Registration
No. 333-113470).
|
|
10
|
.7
|
|
First Amendment to Employment Agreement between Cardtronics, LP
and Jack M. Antonini, dated effective as of February 4,
2004 (incorporated by reference to Exhibit 10.11 of the
Registration Statement on
Form S-1
filed by Cardtronics, Inc. on March 10, 2004, Registration
No. 333-113470).
|
|
10
|
.8
|
|
Second Amendment to Employment Agreement between Cardtronics, LP
and Jack M. Antonini, dated effective as of January 1, 2005
(incorporated herein by reference to Exhibit 10.8 of the
Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.9
|
|
Restricted Stock Agreement, dated as of February 4, 2004
between Cardtronics, Inc. and Jack M. Antonini (incorporated
herein by reference to Exhibit 10.9 of the Registration
Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.10
|
|
First Amendment to Restricted Stock Agreement, dated as of
March 1, 2004, between Cardtronics, Inc. and Jack M.
Antonini (incorporated herein by reference to Exhibit 10.10
of the Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.11
|
|
Second Amendment to Restricted Stock Agreement, dated as of
February 10, 2005, between Cardtronics, Inc. and Jack M.
Antonini (incorporated herein by reference to Exhibit 10.11
of the Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.12
|
|
Employment Agreement between Cardtronics, LP and Michael H.
Clinard, dated effective as of June 4, 2001 (incorporated
by reference to Exhibit 10.12 of the Registration Statement
on
Form S-1
filed by Cardtronics, Inc. on March 10, 2004) (incorporated
by reference to Exhibit 10.12 of the Registration Statement
on
Form S-1
filed by Cardtronics, Inc. on March 10, 2004, Registration
No. 333-113470).
|
|
10
|
.13
|
|
First Amendment to Employment Agreement between Cardtronics, LP
and Michael H. Clinard, dated effective as of January 1,
2005 (incorporated herein by reference to Exhibit 10.13 of
the Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.14
|
|
Employment Agreement between Cardtronics, LP and Thomas E.
Upton, dated effective as of June 1, 2001 (incorporated by
reference to Exhibit 10.13 of the Registration Statement on
Form S-1
filed by Cardtronics, Inc. on March 10, 2004, Registration
No. 333-113470).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.15
|
|
First Amendment to Employment Agreement between Cardtronics, LP
and Thomas E. Upton, dated effective as of January 1, 2005
(incorporated herein by reference to Exhibit 10.15 of the
Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.16
|
|
Employment Agreement between Cardtronics, LP and J. Chris
Brewster, dated effective as of March 31, 2004
(incorporated by reference to Exhibit 10.14 of the
Registration Statement on
Form S-1/A
filed by Cardtronics, Inc. on May 14, 2004).
|
|
10
|
.17
|
|
First Amendment to Employment Agreement between Cardtronics, LP
and J. Chris Brewster, dated effective as of January 1,
2005 (incorporated herein by reference to Exhibit 10.17 of
the Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.18
|
|
Employment Agreement between Cardtronics, LP, Cardtronics, Inc.
and Drew Soinski, dated effective as of July 12, 2005
(incorporated herein by reference to Exhibit 10.18 of the
Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.19
|
|
Amended and Restated Service Agreement between Bank Machine
Limited and Ron Delnevo, dated effective as of May 17, 2005
(incorporated herein by reference to Exhibit 10.19 of the
Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.20
|
|
Bonus Agreement between Bank Machine Limited and Ron Delnevo,
dated effective as of May 17, 2005 (incorporated herein by
reference to Exhibit 10.20 of the Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.21
|
|
2001 Stock Incentive Plan of Cardtronics Group, Inc., dated
effective as of June 4, 2001 (incorporated herein by
reference to Exhibit 10.21 of the Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.22
|
|
Amendment No. 1 to the 2001 Stock Incentive Plan of
Cardtronics Group, Inc., dated effective as of January 30,
2004 (incorporated herein by reference to Exhibit 10.22 of
the Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.23
|
|
Amendment No. 2 to the 2001 Stock Incentive Plan of
Cardtronics Group, Inc., dated effective as of June 23,
2004 (incorporated herein by reference to Exhibit 10.23 of
the Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.24
|
|
Form of Director Indemnification Agreement entered into by and
between Cardtronics, Inc. and each of its directors, dated as of
February 10, 2005 (incorporated herein by reference to
Exhibit 10.24 of the Registration Statement on
Form S-4,
filed by Cardtronics, Inc. on January 20, 2006,
Registration
No. 333-131199).
|
|
10
|
.25
|
|
Amendment No. 1 to ATM Cash Services Agreement, dated
August 2, 2004 (incorporated herein by reference to
Exhibit 10.25 of the Amendment No. 2 to Registration
Statement on
Form S-4/A
filed by Cardtronics, Inc. on August 25, 2006, Registration
No. 333-131199).
|
|
10
|
.26
|
|
Amendment No. 2 to ATM Cash Services Agreement, dated
February 9, 2006 (incorporated herein by reference to
Exhibit 10.26 of the Amendment No. 2 to Registration
Statement on
Form S-4/A
filed by Cardtronics, Inc. on August 25, 2006, Registration
No. 333-131199).
|
|
10
|
.27
|
|
2006 Bonus Plan of Cardtronics, Inc., effective as of
January 1, 2006 (incorporated herein by reference to
Exhibit 10.27 of the Annual Report on
Form 10-K
filed on April 2, 2007).
|
|
10
|
.28
|
|
Amendment No. 4 to Credit Agreement, dated as of
February 14, 2006 (incorporated herein by reference to
Exhibit 10.28 of the Annual Report on
Form 10-K
filed on April 2, 2007).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.29***
|
|
Amendment No. 5 to Credit Agreement, dated as of
September 29, 2006.
|
|
10
|
.30
|
|
Amendment No. 6 to Credit Agreement, dated as of
May 3, 2007 (incorporated herein by reference to
Exhibit 10.1 of the Current Report on
Form 8-K
filed on May 9, 2007).
|
|
10
|
.31
|
|
Amendment No. 7 to Credit Agreement, dated as of
July 18, 2007 (incorporated herein by reference to
Exhibit 10.2 of the Quarterly Report on
Form 10-Q
filed on August 14, 2007).
|
|
10
|
.32****
|
|
Vault Cash Agreement, dated as of July 20, 2007, by and
between Cardtronics, Inc. and Wells Fargo, N.A. (incorporated
herein by reference to Exhibit 10.1 of our Quarterly Report
on
Form 10-Q
filed on November 8, 2007).
|
|
10
|
.33****
|
|
Placement Agreement, dated as of July 20, 2007, by and
between Cardtronics, Inc. and 7-Eleven, Inc. (incorporated
herein by reference to Exhibit 10.2 of our Quarterly Report
on
Form 10-Q
filed on November 8, 2007).
|
|
10
|
.34
|
|
Cardtronics, Inc. 2007 Stock Incentive Plan (incorporated by
reference to Exhibit 10.3 of our Quarterly Report on
Form 10-Q
filed on November 8, 2007).
|
|
10
|
.35***
|
|
First Amended and Restated Investors Agreement, dated as of
February 10, 2005, by and among Cardtronics, Inc. and
certain securityholders thereof.
|
|
10
|
.36***
|
|
First Amendment to First Amended and Restated Investors
Agreement, dated as of May 17, 2005, by and among
Cardtronics, Inc. and certain securityholders thereof.
|
|
10
|
.37***
|
|
Form of Second Amendment to First Amended and Restated Investors
Agreement, dated as of November , 2007, by and
among Cardtronics, Inc. and certain securityholders thereof.
|
|
10
|
.38*
|
|
Amendment No. 3 to the 2001 Stock Incentive Plan of
Cardtronics Group, Inc. dated effective as of May 9,
2006.
|
|
10
|
.39*
|
|
Amendment No. 4 to the 2001 Stock Incentive Plan of
Cardtronics Group, Inc. dated effective as of August 22,
2007.
|
|
10
|
.40*
|
|
Amendment No. 5 to the 2001 Stock Incentive Plan of
Cardtronics Group, Inc. dated effective as of November 26,
2007.
|
|
12
|
.1***
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
21
|
.1
|
|
Subsidiaries of Cardtronics, Inc. (incorporated herein by
reference to Exhibit 21.1 of our Annual Report on
Form 10-K
filed on April 2, 2007).
|
|
23
|
.1*
|
|
Consent of Independent Registered Public Accounting Firm KPMG
LLP.
|
|
23
|
.2*
|
|
Consent of Independent Accountants PricewaterhouseCoopers LLP.
|
|
23
|
.3*
|
|
Consent of Vinson & Elkins L.L.P. (Contained in
Exhibit 5.1).
|
|
24
|
.1***
|
|
Power of Attorney (included on the signature page to this
Registration Statement).
|
|
|
|
*
|
|
Filed herewith
|
|
**
|
|
To be filed by amendment
|
|
***
|
|
Previously filed.
|
|
|
|
****
|
|
The Securities and Exchange
Commission has granted confidential treatment of certain
provisions of this exhibit. The omitted material for which
confidential treatment was granted was filed separately with the
Securities and Exchange Commission.
|
|
|
|
|
|
Management contract or compensatory
plan or arrangement
|