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 June 30, 2007

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 333-113470

CARDTRONICS, INC.

(Exact name of registrant as specified in its charter)

Delaware		76-0681190
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
3110 Hayes Road, Suite 300		77082
Houston, TX		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (281) 596-9988

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o      Accelerated filer o      Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Common Stock, par value: $0.0001 per share.		Shares outstanding on August 14, 2007: 1,764,735.

 

 

CARDTRONICS, INC.

TABLE OF CONTENTS

		PAGE
PART I. Financial Information
Item 1. Financial Statements (unaudited)			1
Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006			1
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2007 and 2006			2
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006			3
Notes to Condensed Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures about Market Risk			32
Item 4. Controls and Procedures			34
PART II. Other Information
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 3. Defaults Upon Senior Securities			37
Item 4. Submission of Matters to a Vote of Security Holders			37
Item 5. Other Information			37
Item 6. Exhibits			38
Signatures			39
Second Amended and Restated Certificate of Incorporation
Indenture dated as of July 20, 2007
Registration Rights Agreement
Supplemental Indenture
Supplement Indenture
Amendment No. 7 to Credit Agreement
Certification of the Chief Executive Officer
Certification of the Chief Financial Officer
Certification of the Chief Executive Officer
Certification of the Chief Financial Officer

When we refer to “us’”, “we”, “our”, “ours”’, “the Company’” or “Cardtronics”, we are describing Cardtronics, Inc. and/or our subsidiaries.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CARDTRONICS, INC.

		June 30,				December 31,
		2007				2006
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	1,836			$	2,718
Accounts and notes receivable, net of allowance of $522 and $409 as of June 30, 2007 and December 31, 2006, respectively			13,660				14,891
Inventory			6,849				4,444
Prepaid expenses, deferred costs, and other current assets			13,049				16,334
Total current assets			35,394				38,387
Property and equipment, net			98,280				86,668
Intangible assets, net			62,849				67,763
Goodwill			171,292				169,563
Prepaid expenses and other assets			5,591				5,375
Total assets		$	373,406			$	367,756
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current portion of long-term debt and notes payable		$	398			$	194
Current portion of other long-term liabilities			2,084				2,501
Accounts payable and accrued liabilities			52,333				51,256
Total current liabilities			54,815				53,951
Long-term liabilities:
Long-term debt, net of related discount			263,309				252,701
Deferred tax liability, net			8,641				7,625
Other long-term liabilities and minority interest in subsidiaries			13,530				14,053
Total liabilities			340,295				328,330
Redeemable preferred stock			76,727				76,594
Stockholders’ deficit:
Common stock, $0.0001 par value; 5,000,000 shares authorized; 2,394,509 shares issued at June 30, 2007 and December 31, 2006; 1,764,735 and 1,760,798 outstanding at June 30, 2007 and December 31, 2006, respectively			—				—
Subscriptions receivable (at face value)			(324	)			(324	)
Additional paid-in capital			3,312				2,857
Accumulated other comprehensive income, net			13,854				11,658
Accumulated deficit			(12,237	)			(3,092	)
Treasury stock; 629,774 and 633,711 shares at cost at June 30, 2007 and December 31, 2006, respectively			(48,221	)			(48,267	)
Total stockholders’ deficit			(43,616	)			(37,168	)
Total liabilities and stockholders’ deficit		$	373,406			$	367,756

See accompanying notes to condensed consolidated financial statements.

CARDTRONICS, INC.

		Three Months Ended June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
Revenues:
ATM operating revenues		$	73,964			$	70,246			$	145,620			$	136,655
ATM product sales and other revenues			3,275				3,008				6,137				5,740
Total revenues			77,239				73,254				151,757				142,395
Cost of revenues:
Cost of ATM operating revenues (includes stock-based compensation of $15 and $16 for the three months ended June 30, 2007 and 2006, respectively, and $31 and $20 for the six months ended June 30, 2007 and 2006, respectively)			56,344				52,406				111,080				102,945
Cost of ATM product sales and other revenues			3,288				2,478				6,085				5,037
Total cost of revenues			59,632				54,884				117,165				107,982
Gross profit			17,607				18,370				34,592				34,413
Operating expenses:
Selling, general, and administrative expenses (includes stock-based compensation of $218 and $238 for the three months ended June 30, 2007 and 2006, respectively, and $424 and $360 for the six months ended June 30, 2007 and 2006, respectively)			6,920				5,060				13,364				9,898
Depreciation and accretion expense			5,182				4,641				11,580				8,858
Amortization expense			2,372				2,331				4,858				7,347
Total operating expenses			14,474				12,032				29,802				26,103
Income from operations			3,133				6,338				4,790				8,310
Other expense (income):
Interest expense, net			6,000				5,657				11,892				11,322
Amortization and write-off of financing costs and bond discount			360				337				716				1,214
Minority interest in subsidiary			—				(49	)			(112	)			(57	)
Other			478				(854	)			359				(657	)
Total other expense			6,838				5,091				12,855				11,822
(Loss) income before income taxes			(3,705	)			1,247				(8,065	)			(3,512	)
Income tax provision (benefit)			1,910				478				937				(1,157	)
Net (loss) income			(5,615	)			769				(9,002	)			(2,355	)
Preferred stock accretion expense			66				66				133				132
Net (loss) income available to common stockholders		$	(5,681	)		$	703			$	(9,135	)		$	(2,487	)

See accompanying notes to condensed consolidated financial statements.

CARDTRONICS, INC.

		Six Months Ended June 30,
		2007				2006
Cash flows from operating activities:
Net loss		$	(9,002	)		$	(2,355	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, amortization and accretion expense			16,438				16,205
Amortization and write-off of financing costs and bond discount			716				1,214
Stock-based compensation expense			455				380
Deferred income taxes			831				(1,168	)
Minority interest			(112	)			(57	)
Loss on sale or disposal of assets			990				447
Gain on sale of Winn-Dixie equity securities			(569	)			—
Other reserves and non-cash items			676				53
Changes in assets and liabilities, net of acquisitions:
Decrease in accounts and notes receivable, net			925				1,814
Decrease (increase) in prepaid, deferred costs and other current assets			356				(1,549	)
Increase in inventory			(1,187	)			(1,057	)
Increase in other assets			(165	)			(313	)
Increase in accounts payable and accrued liabilities			5,319				2,667
Decrease in other liabilities			(1,652	)			(2,060	)
Net cash provided by operating activities			14,019				14,221
Cash flows from investing activities:
Additions to property and equipment			(23,912	)			(9,454	)
Proceeds from disposals of property and equipment			3				8
Payments for exclusive license agreements and site acquisition costs			(817	)			(2,140	)
Additions to equipment to be leased to customers			(422	)			—
Principal payments received under direct financing leases			13				—
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			(20,309	)			(11,586	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt			25,026				14,300
Repayments of long-term debt			(17,060	)			(14,500	)
Repayment of bank overdraft facility, net			(2,597	)			—
Issuance of capital stock			46				—
Debt issuance and modification costs			—				(198	)
Net cash provided by (used in) financing activities			5,415				(398	)
Effect of exchange rate changes on cash			(7	)			—
Net (decrease) increase in cash and cash equivalents			(882	)			2,237
Cash and cash equivalents at beginning of period			2,718				1,699
Cash and cash equivalents at end of period		$	1,836			$	3,936
Supplemental disclosure of cash flow information:
Cash paid for interest		$	12,142			$	11,001
Cash paid for income taxes		$	27			$	—
Fixed assets financed by direct debt		$	2,545			$	—

See accompanying notes to condensed consolidated financial statements.

CARDTRONICS, INC.

1. General and Basis of Presentation

General

     Cardtronics, Inc., along with its wholly-owned subsidiaries (collectively, the “Company” or “Cardtronics”), owns and/or operates over 23,050 automated teller machines (“ATM”) in all 50 states and approximately 1,675 ATMs located throughout the United Kingdom. Additionally, the Company owns a majority interest in an entity that operates approximately 750 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 Company’s ATMs in order to provide their banking customers with convenient, surcharge-free ATM access and increase 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 closing related 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.

     This Quarterly Report on Form 10-Q has 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 this Quarterly Report on Form 10-Q along with the Company’s 2006 Annual Report on Form 10-K, which includes a summary of the Company’s significant accounting policies and other disclosures.

     The financial statements as of June 30, 2007 and for the three and six month periods ended June 30, 2007 and 2006 are unaudited. The balance sheet as of December 31, 2006 was derived from the audited balance sheet filed in the Company’s 2006 Annual Report on Form 10-K. In management’s opinion, all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the Company’s interim period results have been made. The results of operations for the three and six month periods ended June 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 Company’s reported net (loss) income or stockholders’ deficit.

     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.

2. Acquisitions

Acquisition of 7-Eleven, Inc. Financial Services Business

     On July 20, 2007, the Company acquired 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, which is subject to further adjustment based on the actual working capital balance outstanding as of the acquisition date, and approximately $1.0 million in other related closing costs. The acquisition 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 “Vcom^®” terminals that are capable of providing more sophisticated financial services, such as check-cashing, money-transfer, and bill payment services. As a result of this acquisition, the number of ATMs that the Company owns and/or operates increased from approximately 25,475 ATMs to approximately 31,000 ATMs. 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, as amended. See Note 7 for additional details on these financings.

     The Company will account for the 7-Eleven ATM Transaction as a business combination pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. Accordingly, the purchase price paid will be allocated to the assets acquired and liabilities assumed based on their respective fair values as of the acquisition date.

Acquisition of CCS Mexico

     In February 2006, the Company acquired a 51.0% ownership stake in CCS Mexico, an independent ATM operator located in Mexico, for approximately $1.0 million in cash consideration and the assumption of approximately $0.4 million in additional liabilities. Additionally, the Company incurred approximately $0.3 million in transaction costs associated with this acquisition. CCS Mexico, which was renamed Cardtronics Mexico upon the completion of the Company’s investment, currently operates approximately 750 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 entity’s losses or returns, Cardtronics Mexico is reflected as a consolidated subsidiary in the accompanying condensed consolidated financial statements, with the remaining ownership interest not held by the Company being reflected as a minority interest. See Note 8 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 the accompanying condensed consolidated statements of operations for the each of the periods indicated:

		Three Months Ended
		June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
		(in thousands)
Cost of ATM operating revenues		$	15			$	16			$	31			$	20
Selling, general, and administrative expenses			218				238				424				360
Total stock-based compensation expense		$	233			$	254			$	455			$	380

     A summary of the status of the Company’s outstanding stock options as of June 30, 2007 and changes during the six months ended June 30, 2007 are presented below:

						Weighted
		Number				Average
		of Shares				Exercise Price
Balance as of January 1, 2007			509,461			$	52.76
Granted			16,000			$	86.05
Exercised			(3,937	)		$	11.73
Forfeited			—			$	—
Balance as of June 30, 2007			521,524			$	54.09
Options vested and exercisable as of June 30, 2007			356,524			$	41.63

4. 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, net of related income taxes, related to changes in the fair values of the Company’s interest rate swap derivative transactions and the cumulative

amount of foreign currency translation adjustments associated with the Company’s 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.

     The following table presents the calculation of comprehensive (loss) income, which includes the Company’s (i) net (loss) income; (ii) foreign currency translation adjustments; (iii) unrealized gains associated with the Company’s interest rate hedging activities, net of income taxes; and (iv) reclassifications of unrealized gains on the Company’s available-for-sale securities, net of income taxes for each of the periods indicated:

		Three Months Ended
		June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
		(in thousands)
Net (loss) income		$	(5,615	)		$	769			$	(9,002	)		$	(2,355	)
Foreign currency translation adjustments			2,660				5,190				2,500				5,309
Unrealized gains on interest rate hedges, net of taxes			1,366				1,348				194				3,480
Reclassifications of unrealized gains on available-for-sale securities, net of taxes			—				—				(498	)			—
Total comprehensive (loss) income		$	(1,589	)		$	7,307			$	(6,806	)		$	6,434

     The following table sets forth the components of accumulated other comprehensive income, net of applicable taxes:

		June 30, 2007				December 31, 2006
		(in thousands)
Foreign currency translation adjustments		$	9,211			$	6,711
Unrealized gains on interest rate hedges, net of taxes			4,643				4,449
Unrealized gains on available-for-sale securities, net of taxes			—				498
Total accumulated other comprehensive income		$	13,854			$	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 Company’s book basis and underlying tax basis in those subsidiaries or on the foreign currency translation adjustment amounts reflected in the tables above.

5. Intangible Assets

Intangible Assets with Indefinite Lives

     The following table depicts the net carrying amount of the Company’s intangible assets with indefinite lives as of June 30, 2007 and December 31, 2006, as well as the changes in the net carrying amounts for the six month period ended June 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
Foreign currency translation adjustments			—				1,730				(1	)			—				84				1,813
Balance as of June 30, 2007		$	86,702			$	83,902			$	688			$	200			$	4,007			$	175,499

Intangible Assets with Definite Lives

     The following is a summary of the Company’s intangible assets that are subject to amortization as of June 30, 2007:

		Gross								Net
		Carrying				Accumulated				Carrying
		Amount				Amortization				Amount
						(in thousands)
Customer contracts and relationships		$	83,663			$	(35,936	)		$	47,727
Deferred financing costs			11,263	(1)			(3,572	)			7,691
Exclusive license agreements			4,568				(1,409	)			3,159
Non-compete agreements			100				(35	)			65
Total		$	99,594			$	(40,952	)		$	58,642

     The Company’s intangible assets with definite lives are being amortized over the assets’ estimated useful lives utilizing the straight-line method. Estimated useful lives range from three to twelve years for customer 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 $2.4 million and $2.3 million for the three month periods ended June 30, 2007 and 2006, respectively, and $4.9 million and $7.3 million for the six month periods ended June 30, 2007 and 2006, respectively. Included in the 2007 year-to-date figure is approximately $0.1 million in additional amortization expense related to the impairment of the intangible asset associated with an acquired ATM portfolio within the Company’s U.S reporting segment. This impairment, taken in the first quarter of 2007, was the result of the anticipated non-renewal of a contract included within a previously acquired portfolio. 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 aforementioned attrition issues encountered with 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 and $0.3 million for the three month periods ended June 30, 2007 and 2006, respectively, and $0.7 million and $1.2 million for the six month periods ended June 30, 2007 and 2006, respectively. Included in the 2006 year-to-date figure is approximately $0.5 million in deferred financing costs that the Company wrote-off in February 2006 in connection with certain modifications made to the Company’s existing revolving credit facilities.

     Estimated amortization expense for the Company’s intangible assets with definite lives for the remaining six months of 2007, each of the next five years, and thereafter is as follows:

		Customer				Deferred				Exclusive
		Contracts				Financing				License				Non-compete
		and Relationships(1)				Costs(2)				Agreements				Agreements				Total
		(in thousands)
2007		$	4,624			$	665			$	349			$	13			$	5,651
2008			9,262				1,382				638				25				11,307
2009			8,948				1,459				633				25				11,065
2010			7,495				1,134				536				2				9,167
2011			5,667				977				422				—				7,066
2012			4,588				1,080				351				—				6,019
Thereafter			7,143				732				230				—				8,105
Total		$	47,727			$	7,429			$	3,159			$	65			$	58,380

6. Accounts Payable and Accrued Liabilities

     Accounts payable and accrued liabilities consisted of the following:

		June 30, 2007				December 31, 2006
		(in thousands)
Accounts payable		$	16,791			$	16,915
Accrued interest			7,823				7,954
Accrued merchant fees			7,326				7,915
Accrued armored fees			3,739				3,242
Accrued cash management fees			2,765				2,740
Accrued maintenance fees			2,408				2,090
Accrued compensation			1,588				3,499
Accrued purchases			789				343
Other accrued expenses			9,104				6,558
Total		$	52,333			$	51,256

7. Long-term Debt

     The Company’s long-term debt consisted of the following:

		June 30, 2007				December 31, 2006
		(in thousands)
Revolving credit facility		$	60,600			$	53,100
Senior subordinated notes due August 2013 (net of unamortized discount of $1.1 million as June 30, 2007 and $1.2 million as of December 31, 2006)			198,851				198,783
Other			4,256				1,012
Total			263,707				252,895
Less current portion			398				194
Total excluding current portion		$	263,309			$	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 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.

     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.

     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 June 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 Company’s assets, including the stock of its wholly-owned domestic subsidiaries and 66.0% of the stock of its foreign subsidiaries, are pledged to secure borrowings made under the revolving credit facility. Furthermore, each of the Company’s domestic subsidiaries has guaranteed the Company’s obligations under such facility. There are currently no restrictions on the ability of the Company’s wholly-owned subsidiaries to declare and pay dividends directly to the Company. As of June 30, 2007, the Company was in compliance with all applicable covenants and ratios in effect at that time under the facility.

     On July 20, 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 further reduced the Company’s borrowing capacity under the facility. As of August 13, 2007, the Company’s 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 $60.0 million.

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. 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 15^th and August 15^th of each year. The Notes, which are guaranteed by the Company’s domestic subsidiaries, contain certain covenants that, among other things, limit the Company’s ability to incur additional indebtedness and make certain types of restricted payments, including dividends. As of June 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 9.938%. 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 above revolving credit facility, the Company’s 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 bank’s base rate (currently 5.75%), is utilized for general corporate purposes for the Company’s United Kingdom operations. As of June 30, 2007, a portion of this overdraft facility had been utilized to post a £275,000 bond. As of June 30, 2007 and December 31, 2006, approximately £0.6 million and £1.9 million, respectively, of this overdraft facility had been utilized to help fund certain working capital commitments and to post the aforementioned 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 June 30, 2007, Cardtronics Mexico had entered into three separate five-year equipment financing agreements. Such agreements, which are denominated in Mexican pesos and bear interest at an average rate of 11.03%, were utilized for the purchase of additional ATMs to support the Company’s Mexico operations. As of June 30, 2007 and December 31, 2006, approximately $44.2 million pesos ($4.1 million U.S.) and $9.3 million pesos ($858,000 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 June 30, 2007, the total amount of the guaranty was $22.5 million pesos ($2.1 million U.S.)

8. Other Long-term Liabilities

     Other long-term liabilities consisted of the following:

		June 30, 2007				December 31, 2006
		(in thousands)
Asset retirement obligations (see Note 9)		$	10,455			$	9,989
Deferred revenue and other obligations			540				642
Minority interest in subsidiary			—				112
Other long-term liabilities			2,535				3,310
Total		$	13,530			$	14,053

     The minority interest in subsidiary amount as of December 31, 2006, represents the equity interests of the minority shareholders of Cardtronics Mexico. As of June 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 June 30, 2007, the cumulative amount of excess losses allocated to Cardtronics totaled approximately $207,000. See Note 15 regarding an anticipated minority interest contribution. No receivable or allocation of these losses has been recorded, as such amounts have not been received as of June 30, 2007.

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 Company’s asset retirement obligation liability for the six month period ended June 30, 2007 (in thousands):

Asset retirement obligation as of January 1, 2007		$	9,989
Additional obligations			2,564
Accretion expense			473
Payments			(648	)
Change in estimates			(1,973	)
Foreign currency translation adjustments			50
Asset retirement obligation as of June 30, 2007		$	10,455

     The change in estimate for the six months ended June 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. Preferred Stock

     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 Company’s common shareholders, including board representation rights and the right to receive their original issue price prior to any distributions being made to the common shareholders as part of a liquidation, dissolution or winding up of the Company. As of June 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 Company’s 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 Company’s 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) to 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 agreed 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.

     The carrying value of the Company’s Series B preferred stock was $76.7 million and $76.6 million, net of unaccreted issuance costs of approximately $1.3 million and $1.4 million as of June 30, 2007 and December 31, 2006, respectively. Such issuance costs are being accreted on a straight-line basis through February 2012, which represents the earliest optional redemption date outlined above.

11. Income Taxes

     Income taxes included in the Company’s loss from continuing operations for the three and six month periods ended June 30, 2007 and 2006, were as follows:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
		(in thousands)								(in thousands)
Income tax provision (benefit)		$	1,910			$	478			$	937			$	(1,157	)
Effective tax rate			(51.6	)%			38.3	%			(11.6	)%			32.9	%

     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 quarter ended June 30, 2007, as a result of the Company’s 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 Company’s forecasted domestic pre-tax book loss figures for the remainder of 2007, the Company determined that a valuation allowance should be established for the Company’s existing domestic net deferred tax asset balance as of June 30, 2007. Such amount, which reflects the Company’s net domestic deferred tax asset balance, excluding any deferred tax liabilities not expected to reverse in the foreseeable future, totaled approximately $0.9 million, and is reflected in the current quarter and year-to-date provision amounts reflected above. 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. Accordingly, the Company recorded an additional $1.0 million adjustment through its income tax provision line item during the quarter ended June 30, 2007, reflecting the reversal of the domestic income tax benefit amount recorded during the immediately preceding quarter. Such adjustment reflects the change in the Company’s estimated annual domestic effective income tax rate to 0% as a result of anticipated book losses following the 7-Eleven ATM Transaction.

     The combination of the valuation allowance and the change in the Company’s estimated domestic effective income tax rate for 2007 resulted in a negative effective tax rate for the most recently completed quarter, as reflected in the table above. Furthermore, as long as the Company continues to generate pre-tax book losses from its domestic operations, the Company’s future effective tax rates are expected to be lower than the statutory rate, on average, than in historical periods.

12. Commitments and Contingencies

     National Federation of the Blind (“NFB”). In connection with its acquisition of the E*TRADE Access, Inc. (“ETA”) ATM portfolio, the Company assumed ETA’s interests and liability for a lawsuit instituted in the United States District Court for the District of Massachusetts (the “Court”) by the NFB, the NFB’s Massachusetts chapter, and several individual blind persons (collectively, the “Private Plaintiffs”) as well as the Commonwealth of Massachusetts with respect to claims relating to the alleged inaccessibility of ATMs for those persons who are visually-impaired. After the acquisition of the ETA ATM portfolio, the Private Plaintiffs named Cardtronics as a co-defendant with ETA and ETA’s parent – E*Trade Bank, and the scope of the lawsuit has expanded to include both ETA’s ATMs as well as the Company’s pre-existing ATM portfolio.

     In June 2007, after nearly three years of litigation with no definitive resolution of any of the contested issues, the parties completed and executed a settlement agreement, which the Company believes will be approved by the Court. Since the matter is being treated as a class action settlement, the notice and approval process will take several months. The Court has scheduled a hearing following the above-described notice period for December 4, 2007. Despite the Company’s expectation that the Court will approve the proposed settlement at that time, in the event that members of the class object to the proposed settlement and the Court concludes that their objections are valid and, for that reason, refuses to approve the settlement, the lawsuit would resume. If that occurs, the Company will continue its defense of this lawsuit in an aggressive manner as previously set forth. If approved, the Company believes this settlement will be beneficial as it imposes no unreasonable requirements upon the Company in the way of the deployment of additional ATMs and would serve to end this litigation.

     Other matters. In June 2006, Duane Reade, Inc. (“Customer”), one of the Company’s 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 Company’s operating agreement with the Customer extends to December 2014, the Customer’s 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. The Company 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 Company’s financial condition or results of operations.

     The Company’s complaint in the United States District Court in Portland, Oregon, against CGI, Inc., one of its distributors inherited from the E*TRADE acquisition (“Distributor”), was satisfactorily settled on July 31, 2007. The Company paid a nominal amount to the Distributor as a condition of this settlement. The Company will continue its relationship with the Distributor under an amended agreement, the terms and conditions of which are more favorable to the Company than those under the original agreement.

     The Company is also subject to various legal proceedings and claims arising in the ordinary course of its business. The Company has provided reserves where necessary for all claims and the Company’s management does not expect the outcome in any of these legal proceedings, individually or collectively, to have a material adverse effect on the Company’s financial condition or results of operations.

13. 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 the Mexican Interbank Rate (“TIIE”) in Mexico). It is the Company’s policy to limit the variability of a portion of its expected future interest payments as a result of changes in 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 Company’s 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				3.91	%		July 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

     Net amounts paid or received under such swaps are recorded as adjustments to the Company’s “Cost of ATM operating revenues” in the accompanying condensed consolidated statements of operations. During the six month periods ended June 30, 2007 and 2006, the gains or losses incurred as a result of ineffectiveness associated with the Company’s interest rate swaps were immaterial.

     The Company’s 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 Company’s interest rate swaps have been reported in accumulated other comprehensive income in the accompanying condensed consolidated balance sheets. As of June 30, 2007 and December 31, 2006, the unrealized gains on such swaps totaled approximately $7.4 million and $7.1 million and have been included in accumulated other comprehensive income, net of income taxes of $2.8 million and $2.7 million, respectively.

     As of June 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.

     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 will utilize for the operation of the acquired 5,500 ATMs and Vcom units. Under the terms of the agreement, the Company will pay a monthly cash rental fee to Wells Fargo on the average amount outstanding under a formula based on the federal funds effective rate. During 2006, the outstanding vault cash balance for the acquired 7-Eleven ATMs and Vcom units averaged approximately $300.0 million per month. As a result of the increased vault cash requirement resulting from the acquisition, the Company’s exposure to changes in domestic interest rates will significantly increase going forward. As a result, and in order to limit such exposure, 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 anticipated 7-Eleven outstanding vault cash balances. These swaps will serve to fix the interest-based rental rate paid on the $250.0 million notional amount at a weighted average rate of 4.93% (excluding the applicable margin) through December 2010. As is the case with the Company’s existing interest rate swaps, the interest rate swaps executed in August 2007 have been designated as cash flow hedges pursuant to SFAS No. 133.

14. Segment Information

     As of June 30, 2007, the Company’s operations consisted of its United States, United Kingdom, and Mexico segments. While each of these reportable segments provides similar ATM-related services, each segment is managed separately, as they require different marketing and business strategies. All intercompany transactions between the Company’s reportable segments have been eliminated. The following summarizes certain financial data by reportable segment for the three and six month periods ended June 30, 2007 and 2006 and as of June 30, 2007 and December 31, 2006:

		For the Three Months Ended June 30, 2007
						United
		United States				Kingdom				Mexico				Eliminations				Total
		(in thousands)
Revenue from external customers		$	60,972			$	15,380			$	887			$	—			$	77,239
Intersegment revenue			(11	)			—				—				11				—
Depreciation, depletion, and amortization expense			5,425				2,075				56				(2	)			7,554
Income (loss) from operations			2,421				1,016				(239	)			(65	)			3,133
Interest income			1,088				19				31				(1,058	)			80
Interest expense			6,339				1,060				99				(1,058	)			6,440
Loss before income taxes			(3,174	)			(160	)			(306	)			(65	)			(3,705	)
Capital expenditures(1) (2)		$	3,919			$	5,550			$	1,361			$	—			$	10,830
Additions to equipment to be leased to customers			—				—				219				—				219

		For the Three Months Ended June 30, 2006
						United
		United States				Kingdom				Mexico				Eliminations				Total
		(in thousands)
Revenue from external customers		$	63,612			$	9,492			$	150			$	—			$	73,254
Intersegment revenue			108				—				—				(108	)			—
Depreciation, depletion, and amortization expense			5,626				1,336				10				—				6,972
Income (loss) from operations			5,212				1,241				(93	)			(22	)			6,338
Interest income			935				54				—				(872	)			117
Interest expense			6,097				871				15				(872	)			6,111
Income (loss) before income taxes			1,004				314				(47	)			(24	)			1,247
Capital expenditures(1) (2)		$	4,774			$	2,647			$	47			$	—			$	7,468

		For the Six Months Ended June 30, 2007
						United
		United States				Kingdom				Mexico				Eliminations				Total
		(in thousands)
Revenue from external customers		$	121,927			$	28,340			$	1,490			$	—			$	151,757
Intersegment revenue			82				—				—				(82	)			—
Depreciation, depletion, and amortization expense			12,534				3,840				93				(29	)			16,438
Income (loss) from operations			3,229				2,153				(522	)			(70	)			4,790
Interest income			2,091				36				46				(2,045	)			128
Interest expense			12,575				2,068				138				(2,045	)			12,736
Loss before income taxes			(7,280	)			(89	)			(626	)			(70	)			(8,065	)
Capital expenditures(1) (2)		$	12,110			$	11,224			$	1,395			$	—			$	24,729
Additions to equipment to be leased to customers			—				—				422				—				422

		For the Six Months Ended June 30, 2006
						United
		United States				Kingdom				Mexico				Eliminations			Total
		(in thousands)
Revenue from external customers		$	124,557			$	17,636			$	202			$	—			$	142,395
Intersegment revenue			170												(170	)			—
Depreciation, depletion, and amortization expense			13,694				2,497				14				—				16,205
Income (loss) from operations			6,652				1,831				(129	)			(44	)			8,310
Interest income			1,793				98				—				(1,683	)			208
Interest expense			12,730				1,682				15				(1,683	)			12,744
(Loss) income before income taxes			(3,513	)			103				(55	)			(47	)			(3,512	)
Capital expenditures(1) (2)		$	8,157			$	3,308			$	129			$	—			$	11,594

Identifiable Assets:

		June 30, 2007				December 31, 2006
		(in thousands)
United States		$	230,592			$	238,127
United Kingdom			136,001				126,070
Mexico			6,813				3,559
Total		$	373,406			$	367,756

15. 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 enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. The interpretation prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return and also provides guidance on 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 June 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 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.

     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 issuer’s 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, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, to include scope exceptions for registration payment arrangements. FSP EITF 00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to the date of issuance of this standard. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of this standard, the guidance in the standard is effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years. The Company 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 Company’s 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.

16. 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 10.

     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 Company’s 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. As of June 30, 2007, the minority interest shareholder has not funded this purchase consideration.

17. Supplemental Guarantor Financial Information

     The Company’s 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 Company’s domestic subsidiaries. The following information sets forth the condensed consolidating statements of operations for the three and six month periods ended June 30, 2007 and 2006, the condensed consolidating balance sheets as of June 30, 2007 and December 31, 2006, and the condensed consolidating statements of cash flows for the six month periods ended June 30, 2007 and 2006, of (i) Cardtronics, Inc., the parent company and issuer of the senior subordinated notes (the “Parent”); (ii) the Company’s domestic subsidiaries on a combined basis (collectively, the “Guarantors”); and (iii) the Company’s international subsidiaries on a combined basis (collectively, the “Non-Guarantors”):

Condensed Consolidating Statements of Operations

		Three Months Ended June 30, 2007
										Non-
		Parent				Guarantors				Guarantors				Eliminations				Total
		(in thousands)
Revenues		$	—			$	60,961			$	16,267			$	11			$	77,239
Operating costs and expenses			282				58,258				15,490				76				74,106
Operating (loss) income			(282	)			2,703				777				(65	)			3,133
Interest expense, net			2,159				3,092				1,109				—				6,360
Equity in (earnings) losses of subsidiaries			1,201				—				—				(1,201	)			—
Other (income) expense, net			—				344				134				—				478
(Loss) income before income taxes			(3,642	)			(733	)			(466	)			1,136				(3,705	)
Income tax provision (benefit)			1,908				52				(50	)			—				1,910
Net (loss) income			(5,550	)			(785	)			(416	)			1,136				(5,615	)
Preferred stock accretion expense			66				—				—				—				66
Net (loss) income available to common stockholders		$	(5,616	)		$	(785	)		$	(416	)		$	1,136			$	(5,681	)

		Three Months Ended June 30, 2006
										Non-
		Parent				Guarantors				Guarantors				Eliminations				Total
		(in thousands)
Revenues		$	—			$	63,720			$	9,642			$	(108	)		$	73,254
Operating costs and expenses			323				58,185				8,494				(86	)			66,916
Operating (loss) income			(323	)			5,535				1,148				(22	)			6,338
Interest expense, net			1,889				3,273				832				—				5,994
Equity in (earnings) losses of subsidiaries			(3,323	)			—				—				3,323				—
Other income, net			—				(955	)			49				3				(903	)
Income (loss) before income taxes			1,111				3,217				267				(3,348	)			1,247
Income tax benefit			317				66				95				—				478
Net income (loss)			794				3,151				172				(3,348	)			769
Preferred stock accretion expense			66				—				—				—				66
Net income (loss) available to common stockholders		$	728			$	3,151			$	172			$	(3,348	)		$	703

		Six Months Ended June 30, 2007
										Non-
		Parent				Guarantors				Guarantors				Eliminations				Total
		(in thousands)
Revenues		$	—			$	122,009			$	29,830			$	(82	)		$	151,757
Operating costs and expenses			589				118,191				28,199				(12	)			146,967
Operating (loss) income			(589	)			3,818				1,631				(70	)			4,790
Interest expense, net			4,360				6,124				2,124				—				12,608
Equity in (earnings) losses of subsidiaries			3,235				—				—				(3,235	)			—
Other (income) expense, net			(112	)			137				222				—				247
(Loss) income before income taxes			(8,072	)			(2,443	)			(715	)			3,165				(8,065	)
Income tax provision (benefit)			860				105				(28	)			—				937
Net (loss) income			(8,932	)			(2,548	)			(687	)			3,165				(9,002	)
Preferred stock accretion expense			133				—				—				—				133
Net (loss) income available to common stockholders		$	(9,065	)		$	(2,548	)		$	(687	)		$	3,165			$	(9,135	)

		Six Months Ended June 30, 2006
										Non-
		Parent				Guarantors				Guarantors				Eliminations				Total
		(in thousands)
Revenues		$	—			$	124,727			$	17,838			$	(170	)		$	142,395
Operating costs and expenses			485				117,590				16,136				(126	)			134,085
Operating (loss) income			(485	)			7,137				1,702				(44	)			8,310
Interest expense, net			4,106				6,831				1,599				—				12,536
Equity in (earnings) losses of subsidiaries			(1,120	)			—				—				1,120				—
Other income, net			—				(772	)			55				3				(714	)
(Loss) income before income taxes			(3,471	)			1,078				48				(1,167	)			(3,512	)
Income tax (benefit) provision			(1,163	)			(26	)			32				—				(1,157	)
Net (loss) income			(2,308	)			1,104				16				(1,167	)			(2,355	)
Preferred stock accretion expense			132				—				—				—				132
Net (loss) income available to common stockholders		$	(2,440	)		$	1,104			$	16			$	(1,167	)		$	(2,487	)

Condensed Consolidating Balance Sheets

		As of June 30, 2007
										Non-
		Parent				Guarantors				Guarantors				Eliminations				Total
Assets:
Cash and cash equivalents		$	35			$	1,588			$	213			$	—			$	1,836
Receivables, net			4,571				11,227				2,713				(4,851	)			13,660
Other current assets			1,001				12,373				6,711				(187	)			19,898
Total current assets			5,607				25,188				9,637				(5,038	)			35,394
Property and equipment, net			—				61,174				37,312				(206	)			98,280
Intangible assets, net			6,757				41,096				14,996				—				62,849
Goodwill			—				86,703				84,589				—				171,292
Investments and advances to subsidiaries			78,325				—				—				(78,325	)			—
Intercompany receivable			(129	)			5,288				(5,159	)			—				—
Prepaid and other assets			214,837				4,089				1,439				(214,774	)			5,591
Total assets		$	305,397			$	223,538			$	142,814			$	(298,343	)		$	373,406
Liabilities and Stockholders’ Deficit:
Current portion of long-term debt and notes payable		$	—			$	—			$	398			$	—			$	398
Current portion of other long-term liabilities			—				1,939				145				—				2,084
Accounts payable and accrued liabilities			8,522				34,811				13,981				(4,981	)			52,333
Total current liabilities			8,522				36,750				14,524				(4,981	)			54,815
Long-term debt, less current portion			259,450				127,351				91,282				(214,774	)			263,309
Other non-current liabilities and minority interest			4,314				10,840				7,017				—				22,171
Total liabilities			272,286				174,941				112,823				(219,755	)			340,295
Preferred stock			76,727				—				—				—				76,727
Stockholders’ equity (deficit)			(43,616	)			48,597				29,991				(78,588	)			(43,616	)
Total liabilities and stockholders’ deficit		$	305,397			$	223,538			$	142,814			$	(298,343	)		$	373,406