##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission File Number 333-131199
 
 CARDTRONICS, INC.
  Delaware
    
    76-0681190(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 3110 Hayes Road, Suite 300
    
    77082Houston, TX
    
    (Zip Code)(Address of principal executive offices)
 (281) 596-9988
  o þ
  o o þ
  o þ
 Common Stock, par value: $0.0001 per share.
    
    Shares outstanding on November 14, 2006: 1,760,798.




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##### 



CARDTRONICS, INC.
 TABLE OF CONTENTS
 PageCaption
    
    NumberPart I. Financial InformationItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005
    
    
    1Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2006 and 2005
    
    
    2Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    35Part II. Other InformationItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37Signatures
    
    
    38Certification of CEO pursuant to Section 13a-14aCertification of CFO pursuant to Section 13a-14aCertification of CEO pursuant to Section 13a-14bCertification of CFO pursuant to Section 13a-14b




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CARDTRONICS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    475
    
    
    $
    1,699Accounts and notes receivable, net of allowance of $242 and $624
as of September 30, 2006 and December 31, 2005, respectively
    
    
    12,455
    
    
    
    9,746Inventory
    
    
    5,715
    
    
    
    2,747Prepaid expenses, deferred costs, and other current assets
    
    
    10,289
    
    
    
    4,244Restricted cash, short-term
    
    
    1,507
    
    
    
    4,232Deferred tax asset, net
    
    
    835
    
    
    
    1,105Total current assets
    
    
    31,276
    
    
    
    23,773Restricted cash
    
    
    34
    
    
    
    33Property and equipment, net
    
    
    82,835
    
    
    
    74,151Intangible assets, net
    
    
    68,215
    
    
    
    75,965Goodwill
    
    
    167,756
    
    
    
    161,557Prepaid expenses and other assets
    
    
    4,798
    
    
    
    8,272Total assets
    
    $
    354,914
    
    
    $
    343,751LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Notes payable and capital leases
    
    $
    145
    
    
    $
    3,168Current portion of other long-term liabilities
    
    
    2,180
    
    
    
    2,251Accounts payable and accrued liabilities
    
    
    45,285
    
    
    
    42,438Total current liabilities
    
    
    47,610
    
    
    
    47,857Long-term liabilities:Long-term debt, net of related discount
    
    
    252,850
    
    
    
    244,456Deferred tax liability, net
    
    
    8,147
    
    
    
    9,800Other long-term liabilities and minority interest in subsidiaries
    
    
    14,666
    
    
    
    14,393Total liabilities
    
    
    323,273
    
    
    
    316,506Redeemable preferred stock
    
    
    76,528
    
    
    
    76,329Stockholders deficit:Common stock, $0.0001 par value; 2,500,000 shares authorized;
2,394,509 shares issued at September 30, 2006 and December 31,
2005; 1,760,798 and 1,771,349 outstanding at September 30, 2006
and December 31, 2005, respectively
    
    
    
    
    
    
    Subscriptions receivable (at face value)
    
    
    (324
    )
    
    
    (1,476
    )Additional paid-in capital
    
    
    2,607
    
    
    
    2,033Accumulated other comprehensive income (loss), net
    
    
    6,230
    
    
    
    (346
    )Accumulated deficit
    
    
    (5,133
    )
    
    
    (2,252
    )Treasury stock; 633,711 and 623,160 shares at cost at September
30, 2006 and December 31, 2005, respectively
    
    
    (48,267
    )
    
    
    (47,043
    )Total stockholders deficit
    
    
    (44,887
    )
    
    
    (49,084
    )Total liabilities and stockholders deficit
    
    $
    354,914
    
    
    $
    343,751
 See accompanying notes to condensed consolidated financial statements.
 1




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##### Table of Contents



CARDTRONICS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:ATM operating revenues
    
    $
    72,887
    
    
    $
    69,603
    
    
    $
    209,542
    
    
    $
    191,731ATM product sales and other revenues
    
    
    3,478
    
    
    
    2,131
    
    
    
    9,218
    
    
    
    7,457Total revenues
    
    
    76,365
    
    
    
    71,734
    
    
    
    218,760
    
    
    
    199,188Cost of revenues:Cost of ATM operating revenues (includes
stock-based compensation of $15 and $0 for
the three months ended September 30, 2006
and 2005, respectively, and $35 and $172
for the nine months ended September 30,
2006 and 2005, respectively)
    
    
    54,280
    
    
    
    53,612
    
    
    
    157,225
    
    
    
    148,699Cost of ATM product sales and other revenues
    
    
    3,105
    
    
    
    2,173
    
    
    
    8,142
    
    
    
    6,976Total cost of revenues
    
    
    57,385
    
    
    
    55,785
    
    
    
    165,367
    
    
    
    155,675Gross profit
    
    
    18,980
    
    
    
    15,949
    
    
    
    53,393
    
    
    
    43,513Operating expenses:Selling, general and administrative
expenses (includes stock-based compensation
of $240 and $131 for the three months ended
September 30, 2006 and 2005, respectively,
and $600 and $2,070 for the nine months
ended September 30, 2006 and 2005,
respectively)
    
    
    5,811
    
    
    
    4,512
    
    
    
    15,709
    
    
    
    13,212Depreciation and accretion expense
    
    
    5,214
    
    
    
    3,388
    
    
    
    14,072
    
    
    
    8,530Amortization expense
    
    
    2,263
    
    
    
    1,980
    
    
    
    9,610
    
    
    
    5,689Total operating expenses
    
    
    13,288
    
    
    
    9,880
    
    
    
    39,391
    
    
    
    27,431Income from operations
    
    
    5,692
    
    
    
    6,069
    
    
    
    14,002
    
    
    
    16,082Other (income) expense:Interest expense, net
    
    
    5,871
    
    
    
    4,741
    
    
    
    17,193
    
    
    
    10,010Amortization and write-off of financing
costs and bond discount
    
    
    362
    
    
    
    5,453
    
    
    
    1,576
    
    
    
    6,584Minority interest in subsidiary
    
    
    (71
    )
    
    
    
    
    
    
    (128
    )
    
    
    15Other
    
    
    (83
    )
    
    
    435
    
    
    
    (740
    )
    
    
    867Total other expenses
    
    
    6,079
    
    
    
    10,629
    
    
    
    17,901
    
    
    
    17,476Loss before income taxes
    
    
    (387
    )
    
    
    (4,560
    )
    
    
    (3,899
    )
    
    
    (1,394
    )Income tax benefit
    
    
    (60
    )
    
    
    (1,696
    )
    
    
    (1,217
    )
    
    
    (545
    )Net loss
    
    
    (327
    )
    
    
    (2,864
    )
    
    
    (2,682
    )
    
    
    (849
    )Preferred stock dividends and accretion expense
    
    
    67
    
    
    
    67
    
    
    
    199
    
    
    
    1,329Net loss available to common stockholders
    
    $
    (394
    )
    
    $
    (2,931
    )
    
    $
    (2,881
    )
    
    $
    (2,178
    )
 See accompanying notes to condensed consolidated financial statements.
 2




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##### Table of Contents



CARDTRONICS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (2,682
    )
    
    $
    (849
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation, amortization and accretion expense
    
    
    23,682
    
    
    
    14,219Amortization and write-off of financing costs and bond discount
    
    
    1,576
    
    
    
    6,584Non-cash compensation expense
    
    
    635
    
    
    
    411Deferred income taxes
    
    
    (1,316
    )
    
    
    (1,137
    )Minority interest
    
    
    (128
    )
    
    
    15Loss on sale or disposal of assets
    
    
    731
    
    
    
    856Changes in assets and liabilities, net of acquisitions:(Increase) decrease in accounts and notes receivables, net
    
    
    (938
    )
    
    
    3,188(Increase) decrease in prepaid, deferred costs and other current assets
    
    
    (3,598
    )
    
    
    881(Increase) decrease in inventory
    
    
    (1,184
    )
    
    
    240Increase in other assets
    
    
    (907
    )
    
    
    (365
    )Increase in accounts payable and accrued liabilities
    
    
    3,972
    
    
    
    9,687Decrease in other liabilities
    
    
    (2,976
    )
    
    
    (4,659
    )Net cash provided by operating activities
    
    
    16,867
    
    
    
    29,071Cash flows from investing activities:Additions to property and equipment
    
    
    (24,179
    )
    
    
    (24,466
    )Payments for exclusive license agreements
    
    
    (1,842
    )
    
    
    (1,025
    )Disposals of property and equipment
    
    
    100
    
    
    
    60Acquisitions, net of cash acquired
    
    
    (12
    )
    
    
    (105,765
    )Net cash used in investing activities
    
    
    (25,933
    )
    
    
    (131,196
    )Cash flows from financing activities:Proceeds from issuance of long-term debt
    
    
    30,300
    
    
    
    468,994Repayments of long-term debt
    
    
    (22,000
    )
    
    
    (357,541
    )Issuance of Series B preferred stock
    
    
    
    
    
    
    73,297Redemption of Series A preferred stock
    
    
    
    
    
    
    (24,795
    )Issuance of capital stock
    
    
    
    
    
    
    84Purchase of treasury stock
    
    
    (50
    )
    
    
    (46,453
    )Debt issuance and modification costs
    
    
    (477
    )
    
    
    (10,519
    )Distributions
    
    
    
    
    
    
    (30
    )Repayment of subscriptions receivable
    
    
    
    
    
    
    386Net cash provided by financing activities
    
    
    7,773
    
    
    
    103,423Effect of exchange rate changes on cash
    
    
    69
    
    
    
    (193
    )Net increase (decrease) in cash and cash equivalents
    
    
    (1,224
    )
    
    
    1,105Cash and cash equivalents at beginning of period
    
    
    1,699
    
    
    
    1,412Cash and cash equivalents at end of period
    
    
    475
    
    
    
    2,517Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    21,554
    
    
    $
    7,501Cash paid for income taxes
    
    $
    49
    
    
    $
    32
 See accompanying notes to condensed consolidated financial statements.
 3




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##### Table of Contents



CARDTRONICS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. General and Basis of Presentation
 General
  Basis of Presentation
     2. Business Combinations
 Acquisition of Bank Machine (Acquisitions) Limited
    4




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##### Table of Contents



Nine Months EndedSeptember 30, 2005Revenues
    
    $
    209,372Income from operations
    
    $
    17,444Net income
    
    $
    109
 Acquisition of ATM National, Inc.
  Acquisition of CCS Mexico
    Other 2005 Acquisitions
   5




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##### Table of Contents



3. Stock-Based Compensation
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Cost of ATM operating revenues
    
    $
    15
    
    
    $
    
    
    
    $
    35
    
    
    $
    172Selling, general and administrative expenses
    
    
    240
    
    
    
    131
    
    
    
    600
    
    
    
    2,070Total stock-based compensation expense
    
    $
    255
    
    
    $
    131
    
    
    $
    635
    
    
    $
    2,242
 Share-Based Payment Accounting for Stock Issued to Employees
 Stock-Based Compensation Plan
  Stock Option Grants
   WeightedNumber of
    
    
    AverageShares
    
    
    Exercise PriceBalance January 1, 2006
    
    
    464,164
    
    
    $
    48.70Granted
    
    
    100,000
    
    
    $
    83.84Exercised
    
    
    (4,703
    )
    
    $
    0.04Forfeited
    
    
    (47,500
    )
    
    $
    82.16Balance September 30, 2006
    
    
    511,961
    
    
    $
    52.91Options vested and exercisable at September 30, 2006
    
    
    278,586
    
    
    $
    31.96
 6




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##### Table of Contents



Fair Value Assumptions
  Three Months Ended
    
    Nine Months EndedSeptember 30, 2006
    
    September 30, 2006Weighted average fair value per stock option granted
    
    $
    32.73
    
    
    $
    33.69Valuation assumptions:Expected option term (years)
    
    
    6.25
    
    
    
    6.25Expected volatility
    
    
    35.90
    %
    
    
    34.54
    %Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Risk-free interest rate
    
    
    4.74
    %
    
    
    4.85
    %
    7




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##### Table of Contents



Non-vested Stock Awards
  Number of
    
    WeightedShares Under
    
    AverageOutstanding
    
    Grant DateOptions
    
    Fair ValueNon-vested options at January 1, 2006
    
    
    270,562
    
    
    $
    6.69Granted
    
    
    100,000
    
    
    $
    33.69Vested
    
    
    (92,187
    )
    
    $
    6.02Forfeited
    
    
    (45,000
    )
    
    $
    8.16Non-vested options at September 30, 2006
    
    
    233,375
    
    
    $
    18.23
  Restricted Stock
    Other Stock-Based Compensation
  8




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##### Table of Contents



4. Related Party Transactions
  5. Comprehensive Income (Loss)
 Reporting Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (327
    )
    
    $
    (2,864
    )
    
    $
    (2,682
    )
    
    $
    (849
    )Foreign currency translation adjustments
    
    
    1,706
    
    
    
    (1,446
    )
    
    
    7,015
    
    
    
    (3,876
    )Unrealized gains (losses) on interest
rate hedges, net of tax
    
    
    (3,919
    )
    
    
    2,179
    
    
    
    (439
    )
    
    
    3,100Total comprehensive income (loss)
    
    $
    (2,540
    )
    
    $
    (2,131
    )
    
    $
    3,894
    
    
    $
    (1,625
    )
  Foreign Currency
    
    
    Unrealized Gains
    
    
    Accumulated OtherTranslation
    
    
    on Interest
    
    
    ComprehensiveAdjustments
    
    
    Rate Hedges
    
    
    Income (Loss)Balance as of December 31, 2005
    
    $
    (5,491
    )
    
    $
    5,145
    
    
    $
    (346
    )Current period changes
    
    
    7,015
    
    
    
    (439
    )
    
    
    6,576Balance as of September 30, 2006
    
    $
    1,524
    
    
    $
    4,706
    
    
    $
    6,230
  6. Intangible Assets
 Intangible Assets with Indefinite Lives
  Goodwill
    
    
    Tradename
    
    
    TotalBalance as of January 1, 2006
    
    $
    161,557
    
    
    $
    3,671
    
    
    $
    165,228Acquisitions
    
    
    1,146
    
    
    
    
    
    
    
    1,146Purchase price adjustments
    
    
    (329
    )
    
    
    
    
    
    
    (329
    )Foreign currency translation adjustments
    
    
    5,382
    
    
    
    265
    
    
    
    5,647Balance as of September 30, 2006
    
    $
    167,756
    
    
    $
    3,936
    
    
    $
    171,692
 9




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##### Table of Contents



Intangible Assets with Definite Lives
  Gross
    
    
    Accumulated
    
    
    Net CarryingCarrying Amount
    
    
    Amortization
    
    
    AmountCustomer contracts and relationships
    
    $
    81,532
    
    
    $
    (29,078
    )
    
    $
    52,454Exclusive license agreements
    
    
    4,261
    
    
    
    (904
    )
    
    
    3,357Non-compete agreements
    
    
    98
    
    
    
    (17
    )
    
    
    81Deferred financing costs
    
    
    10,990
    
    
    
    (2,603
    )
    
    
    8,387Total
    
    $
    96,881
    
    
    $
    (32,602
    )
    
    $
    64,279
     Customer
    
    
    ExclusiveContracts
    
    
    License
    
    
    Non-compete
    
    
    Deferredand Relationships
    
    
    Agreements
    
    
    Agreements
    
    
    Financing Costs
    
    
    Total2006
    
    $
    2,282
    
    
    $
    162
    
    
    $
    6
    
    
    $
    317
    
    
    $
    2,7672007
    
    
    9,031
    
    
    
    636
    
    
    
    24
    
    
    
    1,309
    
    
    
    11,0002008
    
    
    9,038
    
    
    
    576
    
    
    
    24
    
    
    
    1,379
    
    
    
    11,0172009
    
    
    8,697
    
    
    
    571
    
    
    
    24
    
    
    
    1,455
    
    
    
    10,7472010
    
    
    7,430
    
    
    
    475
    
    
    
    3
    
    
    
    1,133
    
    
    
    9,0412011
    
    
    5,531
    
    
    
    361
    
    
    
    
    
    
    
    977
    
    
    
    6,869Thereafter
    
    
    10,445
    
    
    
    576
    
    
    
    
    
    
    
    1,817
    
    
    
    12,838Total
    
    $
    52,454
    
    
    $
    3,357
    
    
    $
    81
    
    
    $
    8,387
    
    
    $
    64,279
 10




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##### Table of Contents



7. Accounts Payable and Accrued Liabilities
  September 30, 2006
    
    
    December 31, 2005Accounts payable
    
    $
    14,070
    
    
    $
    7,285Accrued merchant fees
    
    
    9,116
    
    
    
    7,923Accrued interest
    
    
    3,261
    
    
    
    7,328Accrued cash management fees
    
    
    3,117
    
    
    
    3,430Accrued compensation
    
    
    3,014
    
    
    
    1,722Accrued armored fees
    
    
    2,964
    
    
    
    2,662Accrued maintenance fees
    
    
    1,473
    
    
    
    1,431Accrued purchases
    
    
    420
    
    
    
    2,292Other accrued expenses
    
    
    7,850
    
    
    
    8,365Total
    
    $
    45,285
    
    
    $
    42,438
 8. Long-Term Debt
  September 30, 2006
    
    
    December 31, 2005Revolving credit facility
    
    $
    54,100
    
    
    $
    45,800Senior subordinated notes due
August 2013 (net of
unamortized discount of $1.2
million and $1.3 million as
of September 30, 2006 and
December 31, 2005,
respectively)
    
    
    198,750
    
    
    
    198,656Total
    
    $
    252,850
    
    
    $
    244,456
 Revolving Credit Facility
   Senior Subordinated Notes
 th th
 11




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##### Table of Contents



th th
 9. Other Long-Term Liabilities
  September 30, 2006
    
    
    December 31, 2005Asset retirement obligations
    
    $
    9,908
    
    
    $
    8,339Deferred revenue
    
    
    247
    
    
    
    1,075Minority interest in subsidiary
    
    
    175
    
    
    
    25Other long-term liabilities
    
    
    4,336
    
    
    
    4,954Total
    
    $
    14,666
    
    
    $
    14,393
 10. Asset Retirement Obligations
 Asset
Retirement Obligations.
  Asset retirement obligation as of January 1, 2006
    
    $
    8,339Additional obligations
    
    
    1,074Accretion expense
    
    
    1,186Payments
    
    
    (785
    )Foreign currency translation adjustments
    
    
    94Asset retirement obligation as of September 30, 2006
    
    $
    9,908
 11. Preferred Stock
   12




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##### Table of Contents



12. Commitments and Contingencies
   National Federation of the Blind.
    Accessibility Guidelines under the ADA.
 13




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##### Table of Contents



Other Matters.
  13. Derivative Financial Instruments
   Weighted AverageNotional Amount
    
    Fixed Rate
    
    Period$300,000
    
    
    3.82
    %
    
    October 1, 2006-December 31, 2006$300,000
    
    
    3.86
    %
    
    January 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
  Accounting for Derivative Instruments and Hedging Activities,
  14




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##### Table of Contents



14. Segment Information
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:United States
    
    $
    64,392
    
    
    $
    63,425
    
    
    $
    189,119
    
    
    $
    185,443United Kingdom
    
    
    11,748
    
    
    
    8,309
    
    
    
    29,384
    
    
    
    13,745Mexico
    
    
    271
    
    
    
    
    
    
    
    473
    
    
    
    Intercompany eliminations
    
    
    (46
    )
    
    
    
    
    
    
    (216
    )
    
    
    Total
    
    $
    76,365
    
    
    $
    71,734
    
    
    $
    218,760
    
    
    $
    199,188Income (loss) before income taxes:United States
    
    $
    (1,190
    )
    
    $
    (5,386
    )
    
    $
    (4,702
    )
    
    $
    (2,130
    )United Kingdom
    
    
    931
    
    
    
    826
    
    
    
    1,034
    
    
    
    732Mexico
    
    
    (159
    )
    
    
    
    
    
    
    (215
    )
    
    
    Intercompany eliminations
    
    
    31
    
    
    
    
    
    
    
    (16
    )
    
    
    4Total
    
    $
    (387
    )
    
    $
    (4,560
    )
    
    $
    (3,899
    )
    
    $
    (1,394
    )Intersegment revenues:United States
    
    $
    46
    
    
    $
    
    
    
    $
    216
    
    
    $
    
 September 30, 2006
    
    
    December 31, 2005Identifiable assets:United States
    
    $
    240,550
    
    
    $
    240,600United Kingdom
    
    
    113,220
    
    
    
    103,151Mexico
    
    
    1,144
    
    
    
    Total
    
    $
    354,914
    
    
    $
    343,751
 15. New Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes. Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109 Accounting for Income Taxes
 Fair Value Measurements. Fair Value
Measurements
 Evaluation of Prior Period Misstatements in Current Financial Statements. Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial Statements
 15




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##### Table of Contents



16. Supplemental Guarantor Financial Information
  Condensed Consolidating Statements of Operations
 Three Months Ended September 30, 2006Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    TotalRevenues
    
    $
    
    
    
    $
    64,392
    
    
    $
    12,019
    
    
    $
    (46
    )
    
    $
    76,365Operating costs and expenses
    
    
    311
    
    
    
    60,037
    
    
    
    10,353
    
    
    
    (28
    )
    
    
    70,673Operating income
    
    
    (311
    )
    
    
    4,355
    
    
    
    1,666
    
    
    
    (18
    )
    
    
    5,692Interest expense, net
    
    
    2,229
    
    
    
    3,187
    
    
    
    817
    
    
    
    
    
    
    
    6,233Equity in (earnings) losses of subsidiaries
    
    
    (1,778
    )
    
    
    
    
    
    
    
    
    
    
    1,778
    
    
    
    Other expense (income), net
    
    
    
    
    
    
    (184
    )
    
    
    78
    
    
    
    (48
    )
    
    
    (154
    )Income (loss) before income taxes
    
    
    (762
    )
    
    
    1,352
    
    
    
    771
    
    
    
    (1,748
    )
    
    
    (387
    )Income tax provision (benefit)
    
    
    (405
    )
    
    
    63
    
    
    
    282
    
    
    
    
    
    
    
    (60
    )Net income (loss)
    
    
    (357
    )
    
    
    1,289
    
    
    
    489
    
    
    
    (1,748
    )
    
    
    (327
    )Preferred stock dividends and accretion
expense
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67Net income (loss) available to common
stockholders
    
    $
    (424
    )
    
    $
    1,289
    
    
    $
    489
    
    
    $
    (1,748
    )
    
    $
    (394
    )
 Three Months Ended September 30, 2005Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    TotalRevenues
    
    $
    
    
    
    $
    63,425
    
    
    $
    8,309
    
    
    $
    
    
    
    $
    71,734Operating costs and expenses
    
    
    173
    
    
    
    58,445
    
    
    
    7,047
    
    
    
    
    
    
    
    65,665Operating income
    
    
    (173
    )
    
    
    4,980
    
    
    
    1,262
    
    
    
    
    
    
    
    6,069Interest expense, net
    
    
    5,193
    
    
    
    4,579
    
    
    
    422
    
    
    
    
    
    
    
    10,194Equity in (earnings) losses of subsidiaries
    
    
    (716
    )
    
    
    
    
    
    
    
    
    
    
    716
    
    
    
    Other expense, net
    
    
    
    
    
    
    420
    
    
    
    15
    
    
    
    
    
    
    
    435Income (loss) before income taxes
    
    
    (4,650
    )
    
    
    (19
    )
    
    
    825
    
    
    
    (716
    )
    
    
    (4,560
    )Income tax provision (benefit)
    
    
    (1,786
    )
    
    
    (159
    )
    
    
    249
    
    
    
    
    
    
    
    (1,696
    )Net income (loss)
    
    
    (2,864
    )
    
    
    140
    
    
    
    576
    
    
    
    (716
    )
    
    
    (2,864
    )Preferred stock dividends and accretion
expense
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67Net income (loss) available to common
stockholders
    
    $
    (2,931
    )
    
    $
    140
    
    
    $
    576
    
    
    $
    (716
    )
    
    $
    (2,931
    )
 16




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##### Table of Contents



Condensed Consolidating Statements of Operations  Continued
 Nine Months Ended September 30, 2006Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    TotalRevenues
    
    $
    
    
    
    $
    189,119
    
    
    $
    29,857
    
    
    $
    (216
    )
    
    $
    218,760Operating costs and expenses
    
    
    796
    
    
    
    177,627
    
    
    
    26,489
    
    
    
    (154
    )
    
    
    204,758Operating income
    
    
    (796
    )
    
    
    11,492
    
    
    
    3,368
    
    
    
    (62
    )
    
    
    14,002Interest expense, net
    
    
    6,335
    
    
    
    10,018
    
    
    
    2,416
    
    
    
    
    
    
    
    18,769Equity in (earnings) losses of subsidiaries
    
    
    (2,898
    )
    
    
    
    
    
    
    
    
    
    
    2,898
    
    
    
    Other expense (income), net
    
    
    
    
    
    
    (956
    )
    
    
    133
    
    
    
    (45
    )
    
    
    (868
    )Income (loss) before income taxes
    
    
    (4,233
    )
    
    
    2,430
    
    
    
    819
    
    
    
    (2,915
    )
    
    
    (3,899
    )Income tax provision (benefit)
    
    
    (1,568
    )
    
    
    37
    
    
    
    314
    
    
    
    
    
    
    
    (1,217
    )Net income (loss)
    
    
    (2,665
    )
    
    
    2,393
    
    
    
    505
    
    
    
    (2,915
    )
    
    
    (2,682
    )Preferred stock dividends and accretion
expense
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    199Net income (loss) available to common
stockholders
    
    $
    (2,864
    )
    
    $
    2,393
    
    
    $
    505
    
    
    $
    (2,915
    )
    
    $
    (2,881
    )
 Nine Months Ended September 30, 2005Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    TotalRevenues
    
    $
    
    
    
    $
    185,443
    
    
    $
    13,745
    
    
    $
    
    
    
    $
    199,188Operating costs and expenses
    
    
    2,349
    
    
    
    168,871
    
    
    
    11,890
    
    
    
    (4
    )
    
    
    183,106Operating income
    
    
    (2,349
    )
    
    
    16,572
    
    
    
    1,855
    
    
    
    4
    
    
    
    16,082Interest expense, net
    
    
    6,164
    
    
    
    9,340
    
    
    
    1,090
    
    
    
    
    
    
    
    16,594Equity in (earnings) losses of subsidiaries
    
    
    (6,909
    )
    
    
    
    
    
    
    
    
    
    
    6,909
    
    
    
    Other expense, net
    
    
    
    
    
    
    848
    
    
    
    34
    
    
    
    
    
    
    
    882Income (loss) before income taxes
    
    
    (1,604
    )
    
    
    6,384
    
    
    
    731
    
    
    
    (6,905
    )
    
    
    (1,394
    )Income tax provision (benefit)
    
    
    (751
    )
    
    
    (17
    )
    
    
    223
    
    
    
    
    
    
    
    (545
    )Net income (loss)
    
    
    (853
    )
    
    
    6,401
    
    
    
    508
    
    
    
    (6,905
    )
    
    
    (849
    )Preferred stock dividends and accretion
expense
    
    
    1,329
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,329Net income (loss) available to common
stockholders
    
    $
    (2,182
    )
    
    $
    6,401
    
    
    $
    508
    
    
    $
    (6,905
    )
    
    $
    (2,178
    )
 17




---



##### Table of Contents



Condensed Consolidating Balance Sheets
 As of September 30, 2006Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    TotalAssets:Cash and cash equivalents
    
    $
    17
    
    
    $
    677
    
    
    $
    (219
    )
    
    $
    
    
    
    $
    475Receivables, net
    
    
    1,231
    
    
    
    10,868
    
    
    
    1,669
    
    
    
    (1,313
    )
    
    
    12,455Other current assets
    
    
    1,465
    
    
    
    10,761
    
    
    
    6,137
    
    
    
    (17
    )
    
    
    18,346Total current assets
    
    
    2,713
    
    
    
    22,306
    
    
    
    7,587
    
    
    
    (1,330
    )
    
    
    31,276Property and equipment, net
    
    
    
    
    
    
    61,817
    
    
    
    21,188
    
    
    
    (170
    )
    
    
    82,835Intangible assets, net
    
    
    7,206
    
    
    
    47,804
    
    
    
    13,205
    
    
    
    
    
    
    
    68,215Goodwill
    
    
    4,287
    
    
    
    87,692
    
    
    
    75,777
    
    
    
    
    
    
    
    167,756Investments and advances to subsidiaries
    
    
    70,049
    
    
    
    
    
    
    
    81
    
    
    
    (70,130
    )
    
    
    Intercompany receivable
    
    
    697
    
    
    
    2,813
    
    
    
    (3,510
    )
    
    
    
    
    
    
    Prepaid and other assets
    
    
    208,745
    
    
    
    4,795
    
    
    
    37
    
    
    
    (208,745
    )
    
    
    4,832Total assets
    
    $
    293,697
    
    
    $
    227,227
    
    
    $
    114,365
    
    
    $
    (280,375
    )
    
    $
    354,914Liabilities and Stockholders Deficit:Current portion of notes payable and capital
leases
    
    $
    
    
    
    $
    
    
    
    $
    145
    
    
    $
    
    
    
    $
    145Current portion of other long-term liabilities
    
    
    
    
    
    
    2,180
    
    
    
    
    
    
    
    
    
    
    
    2,180Accounts payable and accrued liabilities
    
    
    4,215
    
    
    
    31,318
    
    
    
    11,081
    
    
    
    (1,329
    )
    
    
    45,285Total current liabilities
    
    
    4,215
    
    
    
    33,498
    
    
    
    11,226
    
    
    
    (1,329
    )
    
    
    47,610Long-term debt, less current portion
    
    
    252,850
    
    
    
    134,551
    
    
    
    74,194
    
    
    
    (208,745
    )
    
    
    252,850Other non-current liabilities and minority
interest
    
    
    4,991
    
    
    
    14,139
    
    
    
    3,755
    
    
    
    (72
    )
    
    
    22,813Total liabilities
    
    
    262,056
    
    
    
    182,188
    
    
    
    89,175
    
    
    
    (210,146
    )
    
    
    323,273Preferred stock
    
    
    76,528
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,528Stockholders equity (deficit)
    
    
    (44,887
    )
    
    
    45,039
    
    
    
    25,190
    
    
    
    (70,229
    )
    
    
    (44,887
    )Total liabilities and stockholders deficit
    
    $
    293,697
    
    
    $
    227,227
    
    
    $
    114,365
    
    
    $
    (280,375
    )
    
    $
    354,914
 As of December 31, 2005Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    TotalAssets:Cash and cash equivalents
    
    $
    118
    
    
    $
    1,544
    
    
    $
    37
    
    
    $
    
    
    
    $
    1,699Receivables, net
    
    
    2,047
    
    
    
    10,706
    
    
    
    836
    
    
    
    (3,843
    )
    
    
    9,746Other current assets
    
    
    1,669
    
    
    
    4,968
    
    
    
    5,691
    
    
    
    
    
    
    
    12,328Total current assets
    
    
    3,834
    
    
    
    17,218
    
    
    
    6,564
    
    
    
    (3,843
    )
    
    
    23,773Property and equipment, net
    
    
    
    
    
    
    58,283
    
    
    
    15,991
    
    
    
    (123
    )
    
    
    74,151Intangible assets, net
    
    
    10,906
    
    
    
    52,243
    
    
    
    12,816
    
    
    
    
    
    
    
    75,965Goodwill
    
    
    5,907
    
    
    
    85,122
    
    
    
    70,528
    
    
    
    
    
    
    
    161,557Investments and advances to subsidiaries
    
    
    60,339
    
    
    
    
    
    
    
    
    
    
    
    (60,339
    )
    
    
    Intercompany receivable
    
    
    487
    
    
    
    2,288
    
    
    
    (2,775
    )
    
    
    
    
    
    
    Prepaid and other assets
    
    
    205,389
    
    
    
    8,988
    
    
    
    27
    
    
    
    (206,099
    )
    
    
    8,305Total assets
    
    $
    286,862
    
    
    $
    224,142
    
    
    $
    103,151
    
    
    $
    (270,404
    )
    
    $
    343,751Liabilities and Stockholders Deficit:Current portion of long-term debt and notes
payable
    
    $
    
    
    
    $
    42
    
    
    $
    3,126
    
    
    $
    
    
    
    $
    3,168Current portion of other long-term liabilities
    
    
    
    
    
    
    2,251
    
    
    
    
    
    
    
    
    
    
    
    2,251Accounts payable and accrued liabilities
    
    
    8,650
    
    
    
    29,444
    
    
    
    8,203
    
    
    
    (3,859
    )
    
    
    42,438Total current liabilities
    
    
    8,650
    
    
    
    31,737
    
    
    
    11,329
    
    
    
    (3,859
    )
    
    
    47,857Long-term debt, less current portion
    
    
    244,456
    
    
    
    139,551
    
    
    
    66,548
    
    
    
    (206,099
    )
    
    
    244,456Other non-current liabilities and minority
interest
    
    
    6,511
    
    
    
    14,629
    
    
    
    3,053
    
    
    
    
    
    
    
    24,193Total liabilities
    
    
    259,617
    
    
    
    185,917
    
    
    
    80,930
    
    
    
    (209,958
    )
    
    
    316,506Preferred stock
    
    
    76,329
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,329Stockholders equity (deficit)
    
    
    (49,084
    )
    
    
    38,225
    
    
    
    22,221
    
    
    
    (60,446
    )
    
    
    (49,084
    )Total liabilities and stockholders deficit
    
    $
    286,862
    
    
    $
    224,142
    
    
    $
    103,151
    
    
    $
    (270,404
    )
    
    $
    343,751
 18




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##### Table of Contents



Condensed Consolidating Statements of Cash Flows
 Nine Months Ended September 30, 2006Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    TotalCash flows provided by (used in)
operating activities
    
    $
    (11,836
    )
    
    $
    21,145
    
    
    $
    7,558
    
    
    $
    
    
    
    $
    16,867Capital expenditures, net
    
    
    
    
    
    
    (17,038
    )
    
    
    (8,883
    )
    
    
    
    
    
    
    (25,921
    )Acquisitions, net of cash acquired
    
    
    (1,039
    )
    
    
    27
    
    
    
    
    
    
    
    1,000
    
    
    
    (12
    )Cash flows provided by (used in)
investing activities
    
    
    (1,039
    )
    
    
    (17,011
    )
    
    
    (8,883
    )
    
    
    1,000
    
    
    
    (25,933
    )Proceeds from issuance of long-term debt
    
    
    35,300
    
    
    
    9,900
    
    
    
    
    
    
    
    (14,900
    )
    
    
    30,300Repayments of long-term debt
    
    
    (22,000
    )
    
    
    (14,900
    )
    
    
    
    
    
    
    14,900
    
    
    
    (22,000
    )Issuance of capital stock
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    (1,000
    )
    
    
    Purchase of treasury stock
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50
    )Other financing activities
    
    
    (477
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (477
    )Cash flows provided by (used in)
financing activities
    
    
    12,773
    
    
    
    (5,000
    )
    
    
    1,000
    
    
    
    (1,000
    )
    
    
    7,773Effect of exchange rate changes
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    
    
    
    
    69Decrease in cash and cash equivalents
    
    
    (102
    )
    
    
    (866
    )
    
    
    (256
    )
    
    
    
    
    
    
    (1,224
    )Cash and cash equivalents at beginning of
period
    
    
    118
    
    
    
    1,544
    
    
    
    37
    
    
    
    
    
    
    
    1,699Cash and cash equivalents at end of period
    
    $
    16
    
    
    $
    678
    
    
    $
    (219
    )
    
    $
    
    
    
    $
    475
 Nine Months Ended September 30, 2005Non-Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    TotalCash flows provided by operating activities
    
    $
    1,188
    
    
    $
    21,472
    
    
    $
    6,411
    
    
    $
    
    
    
    $
    29,071Capital expenditures, net
    
    
    
    
    
    
    (17,862
    )
    
    
    (7,569
    )
    
    
    
    
    
    
    (25,431
    )Acquisitions, net of cash acquired
    
    
    (25,970
    )
    
    
    (17,101
    )
    
    
    (88,664
    )
    
    
    25,970
    
    
    
    (105,765
    )Cash flows provided by (used in) investing
activities
    
    
    (25,970
    )
    
    
    (34,963
    )
    
    
    (96,233
    )
    
    
    25,970
    
    
    
    (131,196
    )Proceeds from issuance of long-term debt
    
    
    233,635
    
    
    
    167,551
    
    
    
    65,820
    
    
    
    1,988
    
    
    
    468,994Repayments of long-term debt
    
    
    (202,000
    )
    
    
    (153,541
    )
    
    
    
    
    
    
    (2,000
    )
    
    
    (357,541
    )Issuance of preferred stock
    
    
    73,297
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,297Redemption of preferred stock
    
    
    (24,795
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,795
    )Issuance of capital stock
    
    
    88
    
    
    
    
    
    
    
    25,954
    
    
    
    (25,958
    )
    
    
    84Purchase of treasury stock
    
    
    (46,453
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46,453
    )Other financing activities
    
    
    (10,059
    )
    
    
    (104
    )
    
    
    
    
    
    
    
    
    
    
    (10,163
    )Cash flows provided by (used in) financing
activities
    
    
    23,713
    
    
    
    13,906
    
    
    
    91,774
    
    
    
    (25,970
    )
    
    
    103,423Effect of exchange rate changes
    
    
    
    
    
    
    
    
    
    
    (193
    )
    
    
    
    
    
    
    (193
    )Increase (decrease) in cash and cash equivalents
    
    
    (1,069
    )
    
    
    415
    
    
    
    1,759
    
    
    
    
    
    
    
    1,105Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    1,412
    
    
    
    
    
    
    
    
    
    
    
    1,412Cash and cash equivalents at end of period
    
    $
    (1,069
    )
    
    $
    1,827
    
    
    $
    1,759
    
    
    $
    
    
    
    $
    2,517
 19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The statements contained in this Quarterly Report on Form 10-Q that are not purely historical
statements are considered to be forward looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are identified by the use of the
words believe, expect, anticipate, will, contemplate, would and similar expressions
that contemplate future events. Numerous important factors, risks, and uncertainties may affect
our operating results, including, without limitation, risks and uncertainties relating to the
Companys reliance on third parties for cash management services; increased regulation and
regulatory uncertainty; trends in ATM usage; decreases in the number of ATMs that can be placed
with the Companys top merchants; increased industry competition; the Companys ability to continue
to execute its growth strategies; risks associated with the acquisition of other ATM networks;
changes in interest rates; declines in, or system failures that interrupt or delay, ATM
transactions; changes in the ATM transaction fees the Company receives; changes in ATM technology;
changes in foreign currency rates; and general and economic conditions. Accordingly, our actual
results may differ materially from those currently anticipated and expressed in such
forward-looking statements.
 Overview
   
    
    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 and 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 are more complex
maintenance procedures that require trained service technicians and often involve replacing
component parts. In addition to first and second line maintenance, we are responsible for
arranging for cash, cash loading, supplies, 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 or lease the
ATM and provide all transaction processing services, but the merchant generally is
responsible for providing and loading cash for the ATM and first line maintenance.
Typically, we deploy ATMs under company-owned arrangements for our national and regional
merchant customers, such as Amerada Hess, BP Amoco, Chevron, Costco, CVS Pharmacy, Duane
Reade, ExxonMobil, Mills Malls, Sunoco, Target, and Walgreens in the United States, and
Alfred Jones, Co-Op, Mitchells & Butlers, the U.K. Post Office, Tates, Tesco, and TM Retail
in the United Kingdom. Because company-owned locations are controlled by us, are usually
located in major national chains, and are thus more likely candidates for additional sources
of revenue such as bank branding, company-owned locations generally offer higher transaction
volumes and greater profitability, which we consider necessary to justify the upfront
capital cost of installing such machines. As of September 30, 2006, we operated
approximately 12,700 ATMs under company-owned arrangements.
    
    Merchant-owned.Under a merchant-owned arrangement, the merchant owns the ATM and is
responsible for its maintenance and most of the operating costs. We typically provide all
transaction processing services, 24x7 help desk and technical support, uptime monitoring
and, in some cases, retain responsibility for providing and loading cash. We typically
operate ATMs with our independent merchant customers under merchant-owned arrangements. A
merchant who purchases an ATM from us is typically responsible for providing cash for the
ATM and all maintenance. The merchant is also responsible for cash loading, supplies,
telecommunication and electrical services. Under these arrangements, we generally retain
responsibility for second line maintenance for an additional fee, and we provide all
transaction processing services. 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 a limited
number of our merchant-owned arrangements, we have assumed responsibility for providing and
loading cash. Accordingly, under these arrangements, the merchant receives a smaller fee on
a per-transaction basis than in the typical merchant-owned arrangement. As of September 30,
2006, we operated approximately 13,000 ATMs under merchant-owned arrangements.
  20




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##### Table of Contents



In-house processing.
 Industry Trends
   Recent Events
 Acquisitions.
  Financing Transactions.
 21




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##### Table of Contents



Winn-Dixie Bankruptcy.
     Customer Contract Cancellations.
 22




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##### Table of Contents



Merchant-owned Account Attrition.
 Critical Accounting Policies
  Goodwill and intangible assets. Business
Combinations
   Goodwill and Other Intangible Assets
 23




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##### Table of Contents



Valuation of long-lived assets. Accounting for Impairment or Disposal of Long-Lived Assets
 Income taxes.
 Stock-based compensation Share-Based Payment
 24




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:ATM operating revenues
    
    
    95.4
    %
    
    
    97.0
    %
    
    
    95.8
    %
    
    
    96.3
    %ATM product sales and other revenues
    
    
    4.6
    
    
    
    3.0
    
    
    
    4.2
    
    
    
    3.7Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of revenues:Cost of ATM operating revenues
    
    
    71.1
    
    
    
    74.7
    
    
    
    71.9
    
    
    
    74.7Cost of ATM product sales and other revenues
    
    
    4.1
    
    
    
    3.0
    
    
    
    3.7
    
    
    
    3.5Total cost of revenues
    
    
    75.2
    
    
    
    77.7
    
    
    
    75.6
    
    
    
    78.2Gross profit
    
    
    24.8
    
    
    
    22.3
    
    
    
    24.4
    
    
    
    21.8Operating expenses:Selling, general and administrative expenses
    
    
    7.6
    
    
    
    6.3
    
    
    
    7.2
    
    
    
    6.6Depreciation and accretion expense
    
    
    6.8
    
    
    
    4.7
    
    
    
    6.4
    
    
    
    4.3Amortization expense
    
    
    3.0
    
    
    
    2.8
    
    
    
    4.4
    
    
    
    2.9Total operating expenses
    
    
    17.4
    
    
    
    13.8
    
    
    
    18.0
    
    
    
    13.8Income from operations
    
    
    7.4
    
    
    
    8.5
    
    
    
    6.4
    
    
    
    8.0Other (income) expense:Interest expense, net
    
    
    8.2
    
    
    
    14.2
    
    
    
    8.6
    
    
    
    8.3Minority interest in subsidiary
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )
    
    
    Other
    
    
    (0.2
    )
    
    
    0.7
    
    
    
    (0.3
    )
    
    
    0.4Total other expense
    
    
    7.9
    
    
    
    14.9
    
    
    
    8.2
    
    
    
    8.7Loss before income taxes
    
    
    (0.5
    )
    
    
    (6.4
    )
    
    
    (1.8
    )
    
    
    (0.7
    )Income tax benefit
    
    
    (0.1
    )
    
    
    (2.4
    )
    
    
    (0.6
    )
    
    
    (0.3
    )Net loss
    
    
    (0.4
    )%
    
    
    (4.0
    )%
    
    
    (1.2
    )%
    
    
    (0.4
    )%
 Key Operating Metrics
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Average number of transacting ATMs
    
    
    25,726
    
    
    
    26,379
    
    
    
    25,913
    
    
    
    26,086Total transactions (in thousands)
    
    
    44,736
    
    
    
    42,202
    
    
    
    128,518
    
    
    
    115,152Monthly total transactions per ATM
    
    
    580
    
    
    
    533
    
    
    
    551
    
    
    
    490Total withdrawal transactions (in thousands)
    
    
    32,241
    
    
    
    31,620
    
    
    
    93,735
    
    
    
    88,221Monthly withdrawal transactions per ATM
    
    
    418
    
    
    
    400
    
    
    
    402
    
    
    
    376Per withdrawal transaction:Total transaction revenues
    
    $
    2.26
    
    
    $
    2.20
    
    
    $
    2.24
    
    
    $
    2.17Cost of transaction revenues
    
    
    1.68
    
    
    
    1.69
    
    
    
    1.68
    
    
    
    1.68Transaction gross profit (1)
    
    $
    0.58
    
    
    $
    0.51
    
    
    $
    0.56
    
    
    $
    0.49Transaction gross profit margin (2)
    
    
    25.7
    %
    
    
    23.2
    %
    
    
    25.0
    %
    
    
    22.6
    %
 
 (1)
    
    Transaction gross profit is a measure of profitability that uses only the
revenue and expenses that are transaction based. The revenue and expenses from ATM
equipment sales and other ATM-related services are not included.(2)
    
    The increase in transaction gross profit margins in 2006 when compared to
2005 is due to the increases in revenues associated with the Companys bank and
network branding initiatives, increased surcharge rates in selected merchant retail
locations, and higher gross profit margins associated with our United Kingdom
portfolio of ATMs (which was acquired in May 2005). 25




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##### Table of Contents



Revenues
 (In thousands)
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    % Change
    
    
    2006
    
    
    2005
    
    
    % ChangeATM operating revenues
    
    $
    72,887
    
    
    $
    69,603
    
    
    
    4.7
    %
    
    $
    209,542
    
    
    $
    191,731
    
    
    
    9.3
    %ATM product sales and
other revenues
    
    
    3,478
    
    
    
    2,131
    
    
    
    63.2
    %
    
    
    9,218
    
    
    
    7,457
    
    
    
    23.6
    %Total revenues
    
    $
    76,365
    
    
    $
    71,734
    
    
    
    6.5
    %
    
    $
    218,760
    
    
    $
    199,188
    
    
    
    9.8
    %
 ATM Operating Revenues.
  ATM Product Sales and Other Revenues.
 Cost of Revenues and Gross Margins
 (In thousands)
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    % Change
    
    
    2006
    
    
    2005
    
    
    % ChangeCost of ATM operating revenues
    
    $
    54,280
    
    
    $
    53,612
    
    
    
    1.2
    %
    
    $
    157,225
    
    
    $
    148,699
    
    
    
    5.7
    %Cost of ATM product sales and
other revenues
    
    
    3,105
    
    
    
    2,173
    
    
    
    42.9
    %
    
    
    8,142
    
    
    
    6,976
    
    
    
    16.7
    %Total cost of revenues
    
    $
    57,385
    
    
    $
    55,785
    
    
    
    2.9
    %
    
    $
    165,367
    
    
    $
    155,675
    
    
    
    6.2
    %ATM operating revenues gross margin
    
    
    25.5
    %
    
    
    23.0
    %
    
    
    
    
    
    
    25.0
    %
    
    
    22.4
    %ATM product sales and other
revenues gross margin
    
    
    10.7
    %
    
    
    (2.0
    )%
    
    
    
    
    
    
    11.7
    %
    
    
    6.5
    %Total gross margin
    
    
    24.9
    %
    
    
    22.2
    %
    
    
    
    
    
    
    24.4
    %
    
    
    21.8
    %
 Cost of ATM Operating Revenues.
  26




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##### Table of Contents



Cost of ATM Product Sales and Other Revenues.
 Gross Margin.
 Selling, General and Administrative Expense
 (In thousands)
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    % Change
    
    
    2006
    
    
    2005
    
    
    % ChangeSelling, general
and administrative
expenses
    
    $
    5,571
    
    
    $
    4,381
    
    
    
    27.2
    %
    
    $
    15,109
    
    
    $
    11,142
    
    
    
    35.6
    %Stock-based compensation
    
    
    240
    
    
    
    131
    
    
    
    83.2
    %
    
    
    600
    
    
    
    2,070
    
    
    
    (71.0
    )%Total selling, general
and administrative
expense
    
    $
    5,811
    
    
    $
    4,512
    
    
    
    28.8
    %
    
    $
    15,709
    
    
    $
    13,212
    
    
    
    18.9
    %Percentage of revenues:Selling, general and
administrative expenses
    
    
    7.3
    %
    
    
    6.1
    %
    
    
    
    
    
    
    6.9
    %
    
    
    5.6
    %Stock-based compensation
    
    
    0.3
    
    
    
    0.2
    
    
    
    
    
    
    
    0.3
    
    
    
    1.0Total selling, general
and administrative
expense
    
    
    7.6
    %
    
    
    6.3
    %
    
    
    
    
    
    
    7.2
    %
    
    
    6.6
    %
 Selling, General and Administrative Expenses.
  Stock-based Compensation. .
 27




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##### Table of Contents



Depreciation and Accretion Expense
 (In thousands)
    
    Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    % Change
    
    2006
    
    2005
    
    % ChangeDepreciation and accretion expense
    
    $
    5,214
    
    
    $
    3,388
    
    
    
    53.9
    %
    
    $
    14,072
    
    
    $
    8,530
    
    
    
    65.0
    %Percentage of revenues
    
    
    6.8
    %
    
    
    4.7
    %
    
    
    
    
    
    
    6.4
    %
    
    
    4.3
    %
   Amortization Expense
 (In thousands)
    
    Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    % Change
    
    2006
    
    2005
    
    % ChangeAmortization expense
    
    $
    2,263
    
    
    $
    1,980
    
    
    
    14.3
    %
    
    $
    9,610
    
    
    $
    5,689
    
    
    
    68.9
    %Percentage of revenues
    
    
    3.0
    %
    
    
    2.8
    %
    
    
    
    
    
    
    4.4
    %
    
    
    2.9
    %
  28




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##### Table of Contents



Interest Expense, Net
 (In thousands)
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    % Change
    
    
    2006
    
    
    2005
    
    
    % ChangeInterest expense, net
    
    $
    5,871
    
    
    $
    4,741
    
    
    
    23.8
    %
    
    $
    17,193
    
    
    $
    10,010
    
    
    
    71.8
    %Amortization and write-off
of financing costs and
bond discount
    
    
    362
    
    
    
    5,453
    
    
    
    (93.4
    )%
    
    
    1,576
    
    
    
    6,584
    
    
    
    (76.1
    )%Total interest expense, net
    
    $
    6,233
    
    
    $
    10,194
    
    
    
    (38.9
    )%
    
    $
    18,769
    
    
    $
    16,594
    
    
    
    13.1
    %Percentage of revenues
    
    
    8.2
    %
    
    
    14.2
    %
    
    
    
    
    
    
    8.6
    %
    
    
    8.3
    %
 Interest Expense, Net.
 Amortization and Write-off of Financing Costs and Bond Discount.
 Other (Income) Expense
 (In thousands)
    
    Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    % Change
    
    2006
    
    2005
    
    % ChangeOther (income) expense
    
    $
    (83
    )
    
    $
    435
    
    
    
    (119.1
    )%
    
    $
    (740
    )
    
    $
    867
    
    
    
    (185.4
    )%Percentage of revenues
    
    
    (0.2
    )%
    
    
    0.7
    %
    
    
    
    
    
    
    (0.3
    )%
    
    
    0.4
    %
  Income Tax Benefit
 (In thousands)
    
    Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    % Change
    
    2006
    
    2005
    
    % ChangeIncome tax benefit
    
    $
    (60
    )
    
    $
    (1,696
    )
    
    
    (96.5
    )%
    
    $
    (1,217
    )
    
    $
    (545
    )
    
    
    123.3
    %Effective tax rate
    
    
    15.5
    %
    
    
    37.2
    %
    
    
    
    
    
    
    31.2
    %
    
    
    39.1
    %
  29




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##### Table of Contents



Liquidity and Capital Resources
 Overview
   Operating Activities
  Investing Activities
     30




---



##### Table of Contents



Financing Activities
      New Accounting Standards
 Share-Based Payment. Share-Based Payment,
 Accounting for Uncertainty in Income Taxes. Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109 Accounting for Income Taxes
 31




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##### Table of Contents



Fair Value Measurements Fair Value
Measurements
 Evaluation of Prior Period Misstatements in Current Financial Statements. Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial Statements
 32




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Disclosure About Market Risk
 Interest Rate Risk
   Notional Amount
    
    Weighted Average Fixed Rate
    
    Period$300,000
    
    
    3.82
    %
    
    October 1, 2006  December 31, 2006$300,000
    
    
    3.86
    %
    
    January 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
  Accounting for Derivative Instruments and Hedging Activities,
   33




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##### Table of Contents



Foreign Currency Exchange Risk
    34




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  35




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 National Federation of the Blind.
    Accessibility Guidelines under the ADA.
 Other Matters.
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  36




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##### Table of Contents



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description*31.1
    
    Certification of the Chief Executive Officer of Cardtronics,
Inc. pursuant to Section 13a-14(a) of the Securities Exchange
Act of 1934.*31.2
    
    Certification of the Chief Financial Officer of Cardtronics,
Inc. pursuant to Section 13a-14(a) of the Securities Exchange
Act of 1934.*32.1
    
    Certification of the Chief Executive Officer of Cardtronics,
Inc. pursuant to Section 13a-14(b) of the Securities Exchange
Act of 1934 and 18 U.S.C. Section 1350.*32.2
    
    Certification of the Chief Financial Officer of Cardtronics,
Inc. pursuant to Section 13a-14(b) of the Securities Exchange
Act of 1934 and 18 U.S.C. Section 1350.
 37




---



##### Table of Contents



SIGNATURES
  CARDTRONICS, INC.November 14, 2006
    
    /s/ Jack AntoniniJack AntoniniPresident and Chief Executive Officer(Principal Executive Officer)November 14, 2006
    
    /s/ J. Chris BrewsterJ. Chris BrewsterChief Financial Officer(Principal Financial and Accounting Officer)
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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber
    
    Description*31.1
    
    Certification of the Chief Executive Officer of Cardtronics,
Inc. pursuant to Section 13a-14(a) of the Securities Exchange
Act of 1934.*31.2
    
    Certification of the Chief Financial Officer of Cardtronics,
Inc. pursuant to Section 13a-14(a) of the Securities Exchange
Act of 1934.*32.1
    
    Certification of the Chief Executive Officer of Cardtronics,
Inc. pursuant to Section 13a-14(b) of the Securities Exchange
Act of 1934 and 18 U.S.C. Section 1350.*32.2
    
    Certification of the Chief Financial Officer of Cardtronics,
Inc. pursuant to Section 13a-14(b) of the Securities Exchange
Act of 1934 and 18 U.S.C. Section 1350.