Overview
Cardtronics, Inc. operates the world's largest non-bank network of automated teller machines ("ATM"). As of September 30, 2009, our network included over 33,000 ATMs throughout the United States and Puerto Rico, the United Kingdom, and Mexico, primarily at national and regional merchant locations. We provide ATM management and equipment-related services and electronic funds transfer ("EFT") transaction processing services to our network of ATMs as well as ATMs owned and operated by a third party. For a more detailed discussion of our operations and the manners in which we derive revenues, please refer to our 2008 Form 10-K.
Economic and Strategic Update
Over the past several years, we have made significant capital investments, including (1) our acquisition of our United Kingdom operations in 2005, (2) our expansion into Mexico in 2006, (3) our acquisition of the ATM and advanced-functionality kiosk business of 7-Eleven, Inc. ("7-Eleven") in 2007,
(4) the launch of our in-house EFT transaction processing platform, and (5) the launch of our in-house armored courier operations. Additionally, during this same period of time, we continued to deploy ATMs in high-traffic locations under our contracts with large, well-known retailers, which has led to the development of relationships with large financial institutions through bank branding opportunities and enhanced the value of our wholly-owned surcharge-free network, Allpoint. As a result of these past strategic actions and the relatively conservative use of capital during this time, the negative impact of the recent economic downturn on our business has been, and we expect will continue to be, mitigated by the following:
Stable and recurring nature of our business. Our financial results for the nine months ended September 30, 2009 demonstrate that the significant capital investments we have made over the past several years have provided us with an operating platform that we believe should continue to generate relatively stable earnings and consistent cash flows. Based on our recent results, we believe transactions conducted on our ATMs have not been negatively affected by the economic downturn and expect that this trend will continue. For example, average monthly cash withdrawal transactions per ATM increased to 616 during the nine months ended September 30, 2009 from 582 during the same period last year. Furthermore, while we have seen some modest declines in surcharge-related withdrawal transactions in the United States and the United Kingdom, we have continued to see increases in overall withdrawal transaction levels (especially surcharge-free withdrawal transactions.) Strong liquidity position. We continue to believe we have a sufficient amount of liquidity to meet our anticipated operating needs for the foreseeable future. Our $175.0 million credit facility, which is in place until May 2012, had $22.8 million outstanding at September 30, 2009, including letters of credit, leaving us with $152.2 million in available, committed funding. The outstanding balance under our facility decreased by $29.9 million from $52.7 million (including letters of credit) at December 31, 2008, due primarily to repayments made during the second and third quarters of 2009. Furthermore, we continue to be in compliance with all covenants under the facility.
Product diversification. Over the past few years, we have consciously worked to diversify our product and service offerings beyond the traditional ATM surcharging model, which we believe will provide future growth opportunities that do not require significant amounts of new capital. Examples of these growth opportunities include (1) adding more third parties to our ATM transaction processing platform, similar to the arrangement we currently have in place to process transactions for over 1,500 ATMs owned and operated by a third-party convenience store chain in the United States; (2) continued expansion and improvement in the types of services that we currently offer on our advanced-functionality ATMs located in 7-Eleven convenience stores across the United States; and (3) continued growth in our branding and surcharge-free offerings. The expansion of our branding relationship with an existing bank branding partner to cover an additional 1,300 ATM locations in the United States during the second quarter of 2009 is an example of one of these growth opportunities.
Although we believe that the characteristics described above should benefit us given current market conditions, the recent trends that have negatively impacted the economy and many of the nation's largest banks could have an adverse impact on our ongoing operations. For example, the continued loan delinquencies and defaults could have a negative impact on those financial institutions with whom we conduct business. Additionally, even though we recently executed a new bank branding agreement with one of our existing branding partners, the negotiation process for new bank branding arrangements continues to remain relatively slow compared to what we have historically experienced.

Recent Events
Foreign Currency Exchange Rates. The strengthening of the United States dollar relative to the British pound and Mexican peso has negatively impacted our results during the first nine months of 2009 in terms of translating those foreign earnings into United States dollars. Despite the negative impact on our revenues and gross profits, this trend did not have a negative impact on our cash flows as we do not currently rely on cash generated by our international operations to fund our domestic operating needs, and each operation conducts substantially all of its business in its local currency. Additionally, we continue to explore potential growth opportunities in the two international markets in which we currently operate, and the strengthening of the United States dollar could enhance our ability to invest in those markets at favorable exchange rates.
Stock Repurchase Program. In February 2009, our Board of Directors approved a common stock repurchase program up to an aggregate of $10.0 million. The shares will be repurchased from time to time in open market transactions or privately negotiated transactions at our discretion. The timing and extent of any purchases will depend on a variety of factors, such as market price, overall market and economic conditions, the level of cash generated from operations, alternative investment opportunities, regulatory considerations or other commitments. We plan to fund repurchases made under this program from available cash balances and cash generated from operations. The share repurchase program will expire on March 31, 2010, unless extended or terminated earlier by our Board of Directors. To date, we have purchased approximately 35,000 shares of our common stock at a total cost of $0.1 million and at an average price per share of $3.37.
Expansion into Puerto Rico. We entered into the Puerto Rican ATM market during the third quarter of 2009. We will initially install ATMs in 11 To Go Stores, a San Juan, Puerto Rico-based chain of convenience stores and gas stations in 2009, and expect to install ATMs in the remaining 15 To Go Stores in 2010. We continue to explore other growth opportunities on the island, as well as entrance into other Latin and Central American ATM markets.

Results of Operations
The following table sets forth our Consolidated Statements of Operations
information as a percentage of total revenues for the periods indicated.
Percentages may not add due to rounding.

                                           Three Months Ended               Nine Months Ended
                                             September 30,                    September 30,
                                          2009            2008             2009           2008
Revenues:
ATM operating revenues                       98.1 %          96.3 %           98.0 %         96.5 %
ATM product sales and other
revenues                                      1.9             3.7              2.0            3.5

Total revenues                              100.0           100.0            100.0          100.0
Cost of revenues:
Cost of ATM operating revenues
(exclusive of depreciation,
accretion, and amortization, shown
separately below) (1)                        66.2            73.1             68.2           73.7
Cost of ATM product sales and other
revenues                                      2.1             3.2              2.1            3.2

Total cost of revenues                       68.2            76.3             70.2           76.9

Gross profit                                 31.8            23.7             29.8           23.1
Operating expenses:
Selling, general, and
administrative expenses (2)                   7.2             8.2              8.3            7.7
Depreciation and accretion expense            7.8             7.8              8.0            7.7
Amortization expense                          3.4             3.7              3.6            3.6
Loss on disposal of assets                    0.8             1.1              1.3            1.0

Total operating expenses                     19.2            20.8             21.3           20.1

Income from operations                       12.6             2.9              8.5            3.0
Other expense (income):
Interest expense, net                         5.8             6.2              6.2            6.2
Amortization of deferred financing
costs and bond discounts                      0.5             0.4              0.5            0.4
Other expense (income)                        0.3             0.0             (0.2 )          0.0

Total other expense                           6.5             6.7              6.5            6.6

Income (loss) before income taxes             6.0            (3.8 )            2.0           (3.6 )
Income tax expense                            1.0             0.3              0.9            0.1

Net income (loss)                             5.1            (4.1 )            1.1           (3.7 )
Net income (loss) attributable to
noncontrolling interests                      0.1            (0.6 )            0.1           (0.2 )

Net income (loss) attributable to
controlling interests and available
to common stockholders                        5.0 %          (3.5 )%           1.0 %         (3.4 )%

(1) Excludes effects of depreciation, accretion, and amortization expense of $12.7 million and $13.3 million for the three month periods ended September 30, 2009 and 2008, respectively, and $38.0 million and $38.9 million for the nine month periods ended September 30, 2009 and 2008, respectively. The inclusion of this depreciation, accretion, and amortization expense in Cost of ATM operating revenues would have increased our Cost of ATM operating revenues as a percentage of total revenues by 9.8% and 10.5% for the three month periods ended September 30, 2009 and 2008, respectively, and by 10.3% and 10.4% for the nine month periods ended September 30, 2009 and 2008, respectively.

(2) Nine months ended September 30, 2009 includes effects of $1.2 million in severance costs associated with the departure of our former CEO during March 2009.

Key Operating Metrics
We rely on certain key measures to gauge our operating performance, including
total transactions, total cash withdrawal transactions, ATM operating revenues
per ATM per month, and ATM operating gross profit margins. The following table
sets forth information regarding certain of these key measures for the three and
nine month periods ended September 30, 2009 and 2008:

                                          Three Months Ended             Nine Months Ended
                                             September 30,                 September 30,
                                          2009           2008           2009           2008
Average number of transacting ATMs:
United States: Company-owned               18,156         18,042         18,201         17,983
United States: Merchant-owned              10,054         10,641         10,110         10,781
United Kingdom                              2,630          2,518          2,581          2,389
Mexico                                      2,155          1,905          2,125          1,645

Total average number of transacting
ATMs                                       32,995         33,106         33,017         32,798


Total transactions (in thousands)          99,794         91,853        285,647        264,678
Total cash withdrawal transactions
(in thousands)                             63,558         59,095        183,169        171,694
Average monthly cash withdrawal
transactions per average
transacting ATM                               642            595            616            582

Per ATM per month:
ATM operating revenues (1)             $    1,275      $   1,234      $   1,215      $   1,226
Cost of ATM operating revenues
(exclusive of depreciation,
accretion, and amortization) (2)              860            937            846            936

ATM operating gross profit (2)(3)      $      415      $     297      $     369      $     290


ATM operating gross profit margin
(exclusive of depreciation,
accretion, and amortization)                 32.6 %         24.1 %         30.4 %         23.6 %
ATM operating gross profit margin
(inclusive of depreciation,
accretion, and amortization)                 22.5 %         13.2 %         19.9 %         12.8 %

(1) ATM operating revenues per ATM per month were negatively affected by the foreign currency exchange rate movements between the three and nine month periods ended September 30, 2009 and 2008. Excluding the impact of foreign currency exchange movement, the ATM operating revenues for the three and nine month periods ended September 30, 2009 would have been $1,320 and $1,274, respectively.

(2) Excludes effects of depreciation, accretion, and amortization expense of $12.7 million and $13.3 million for the three month periods ended September 30, 2009 and 2008, respectively, and $38.0 million and $38.9 million for the nine month periods ended September 30, 2009 and 2008, respectively. The inclusion of this depreciation, accretion, and amortization expense in Cost of ATM operating revenues would have increased our Cost of ATM operating revenues per ATM per month and decreased our ATM operating gross profit per ATM per month by $128 and $134 for the three month periods ended September 30, 2009 and 2008, respectively, and by $128 and $132 for the nine month periods ended September 30, 2009 and 2008, respectively. The decline in Cost of ATM operating revenues per ATM per month was due to foreign currency exchange rate movements between the three and nine month periods ended September 30, 2009 and 2008, as well as lower vault cash interest costs and other operating cost reductions.

(3) ATM operating gross profit is a measure of profitability that uses only the revenue and expenses that related to operating the ATMs in our portfolio. Revenues and expenses from ATM equipment sales and other ATM-related services are not included.

Revenues

                                 Three Months Ended September 30,                    Nine Months Ended September 30,
                               2009              2008          % Change            2009             2008          % Change
                                  (In thousands)                                      (In thousands)
ATM operating revenues     $    126,194       $  122,608             2.9 %     $    361,136       $ 361,773            (0.2 )%
ATM product sales and
other revenues                    2,409            4,651           (48.2 )%           7,460          13,036           (42.8 )%

Total revenues             $    128,603       $  127,259             1.1 %     $    368,596       $ 374,809            (1.7 )%

Three Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008
ATM operating revenues. ATM operating revenues generated during the three months
ended September 30, 2009 increased $3.6 million from the three months ended
September 30, 2008. Below is the detail, by segment, of changes in the various
components of ATM operating revenues:

                                               Variance: Three Months Ended September 30, 2009 to
                                                     Three Months Ended September 30, 2008
                                           U.S.                U.K.              Mexico           Total
                                                              Increase (decrease)
                                                                 (In thousands)
Surcharge revenue                      $      (2,850 )     $      (1,062 )     $       879      $  (3,033 )
Interchange revenue                            1,732                 981              (176 )        2,537
Bank branding and surcharge-free
network revenues                               3,619                   -                (1 )        3,618
Other revenues                                  (100 )                 1               563            464

Total increase (decrease) in ATM
operating revenues                     $       2,401       $         (80 )     $     1,265      $   3,586

United States. During the three months ended September 30, 2009, our United States operations experienced a $2.4 million, or 2%, increase in ATM operating revenues compared to the three months ended September 30, 2008. This increase was primarily due to the continued growth of participating banks and other financial institutions in our bank branding and surcharge-free network programs, which resulted in a $3.6 million or 26% increase in bank branding and surcharge-free network revenues. Additionally, increased participation in these programs and growth in the use of stored-value cards contributed to the 4% increase in the number of withdrawal transactions conducted on our ATMs, which resulted in a 6% increase in interchange revenues in the United States. Offsetting the increase in bank branding and surcharge-free network revenue and interchange revenue during the period was a 13% decline in surcharge transactions, which resulted in a $2.9 million decline in surcharge revenue. Since our surcharge-free programs allow participants' cardholders to make cash withdrawals on a surcharge-free basis at our ATMs, the decline in the number of surcharge transactions was expected, which in turn contributed to the $2.9 million decline in surcharge revenue. Also contributing to the decrease in surcharge transactions was a 6% decline in our merchant-owned account base, which contributed $1.3 million to the $2.9 million year-over-year surcharge revenue decline, but had a minimal impact on our overall gross profit as much of the surcharge revenues generated by those accounts are paid to the underlying merchants. Accordingly, as surcharge revenues declined, so did the related merchant payments.
United Kingdom. Our United Kingdom operations generated ATM operating revenues for the three months ended September 30, 2009 that were relatively consistent with those generated during the third quarter of 2008, due to the unfavorable foreign currency exchange rate movements between the two periods. Excluding the impact of foreign currency movements, total surcharge and interchange revenues increased by $0.9 million (by 6%) and $2.1 million (by 33%), respectively. These increases were primarily driven by a 22% increase in withdrawal transactions that resulted from a 4% increase in the average number of transacting ATMs, based on ATM deployments made throughout 2008 and the first nine months of 2009, and higher withdrawal transactions on our surcharge-free (also referred to as "free-to-use") ATMs.
Mexico. The increase in revenues generated by our Mexico operations during the three months ended September 30, 2009 was the result of a 13% increase in the average number of transacting ATMs associated with these operations as well as higher surcharge and overall withdrawal transactions per machine as compared to the three months ended September 30, 2008. The impact of the increased machine count and transaction levels was partially offset, or entirely in the case of interchange revenue, by unfavorable foreign currency exchange rate movements. ATM product sales and other revenues. ATM product sales and other revenues for the three months ended September 30, 2009 were lower than those generated during the same period in 2008 primarily due to lower equipment sales in Mexico and lower value-added reseller ("VAR") program sales. Under our VAR program, we primarily sell ATMs to Associate VARs who in turn resell the ATMs to various financial institutions throughout the United States in territories authorized by the equipment manufacturer. In light of the current economic climate, financial institutions and others have reduced their ATM purchases and we have, therefore, seen a decline in these sales during 2009.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
ATM operating revenues. ATM operating revenues generated during the nine months ended September 30, 2009 decreased $0.6 million from the nine months ended September 30, 2008. Below is the detail, by segment, of changes in the various components of ATM operating revenues:

                                              Variance: Nine Months Ended September 30, 2009 to
                                                     Nine Months Ended September 30, 2008
                                           U.S.               U.K.             Mexico           Total
                                                             Increase (decrease)
                                                                (In thousands)
Surcharge revenue                      $     (9,062 )     $     (5,133 )     $     2,792      $ (11,403 )
Interchange revenue                           2,998                563               191          3,752
Bank branding and surcharge-free
network revenues                              7,009                  -                (5 )        7,004
Other revenues                                 (553 )                -               563             10

Total increase (decrease) in ATM
operating revenues                     $        392       $     (4,570 )     $     3,541      $    (637 )

United States. During the nine months ended September 30, 2009, our United States operations experienced a $0.4 million increase in ATM operating revenues compared to the nine months ended September 30, 2008. This increase was primarily due to a 16% increase in bank branding and surcharge-free network revenues that resulted from the continued growth of participating banks in our bank branding and surcharge-free network programs. Additionally, as was the case with our quarterly results, increased participation in these programs and growth in the use of stored-value cards contributed to a 3% increase in the number of withdrawal transactions conducted on our ATMs, which resulted in a 4% increase in interchange revenues in the United States. Offsetting the increase in bank branding and surcharge-free network revenue and interchange revenue during the period was a $9.1 million decline in surcharge revenues. Due to the surcharge-free nature of our bank branding and surcharge-free network programs (as discussed above), the level of surcharge transactions declined during the period, which contributed to the $9.1 million decline in surcharge revenue. Also contributing to the decline in surcharge revenue was the decline in our merchant-owned account base, which contributed $4.0 million of the $9.1 million year-over-year surcharge revenue decline, but had a minimal impact on our overall gross profit as much of the surcharge revenues generated by those accounts are paid to the underlying merchants. Accordingly, as surcharge revenues declined, so did the related merchant payments.
During the second quarter of 2009, we agreed to settle a standing lawsuit filed against us by one of our merchant customers in June 2006. As part of that settlement, we agreed to terminate our ATM placement agreement with that merchant (covering approximately 270 ATMs in and around the New York City metropolitan area) no later than October 31, 2009, along with the related bank branding agreement. During the same period, we expanded our bank branding contractual relationship with the same financial institution in roughly 1,300 retail locations across 10 states within the United States. As a result of these transactions, we expect that our ATM operating revenues may be negatively impacted during the fourth quarter of 2009 and beyond when compared to prior periods, as the lost surcharge and interchange revenues may only be partially offset by the anticipated increase in our branding revenues. However, we expect that these transactions will positively impact our gross profits beginning in 2010, as margins earned on our branding revenues are typically higher than those earned on surcharge and interchange revenues generated by our ATM placement programs.
United Kingdom. During the nine months ended September 30, 2009, ATM operating revenues from our United Kingdom operations decreased over 8% from the first nine months of 2008. However, as was the case with the quarterly period, this decrease was the result of unfavorable foreign currency exchange rate movements between the two periods. Excluding the impact of foreign currency movements, total surcharge and interchange revenues generated by our United Kingdom operations increased by $4.1 million and $5.2 million, respectively. These increases were primarily driven by a 21% increase in withdrawal transactions that resulted from an 8% increase in the average number of transacting ATMs, based on ATM deployments made throughout 2008 and the first nine months of 2009, and higher withdrawal transactions on our free-to-use ATMs.
Mexico. Higher revenues generated by our Mexico operations partially offset the decrease in ATM operating revenues from the United Kingdom operations. The increase in revenues generated by our Mexico operations during 2009 was the result of a 29% increase in the average number of transacting ATMs associated with these operations as well as higher surcharge and overall withdrawal transactions per machine during the nine months ended September 30, 2009. As noted above for the quarterly period, the impact of the increased machine count and transaction levels was partially offset by unfavorable foreign currency exchange rate movements.

ATM product sales and other revenues. ATM product sales and other revenues for the nine months ended September 30, 2009 were lower than those generated during the same period in 2008 primarily due to lower equipment and VAR program sales. As noted above for the quarterly period, financial institutions and others have reduced their ATM purchases and we have, therefore, seen a decline in these sales during 2009. Also contributing to the year-to-date decline was the completion of our Triple Data Encryption Standard upgrades in 2008, which . . .