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Press release from Marketwire

DirectCash Payments Inc. Announces Results of Operations for the Three and Six Months Ended June 30, 2012

Monday, August 13, 2012

DirectCash Payments Inc. Announces Results of Operations for the Three and Six Months Ended June 30, 201209:33 EDT Monday, August 13, 2012CALGARY, ALBERTA--(Marketwire - Aug. 13, 2012) - DirectCash Payments Inc. (TSX:DCI) ("DirectCash", "DCPayments" or the "Corporation") today announced consolidated financial results for the three and six months ended June 30, 2012. DCPayments's consolidated financial statements for the three and six months ended June 30, 2012 and Management's Discussion & Analysis, as well as additional information about the Corporation are available on SEDAR (www.sedar.com). Financial and Operational Highlights: Acquired Customers Limited, the largest ATM deployer in Australia, adding approximately 6,600 ATMs in Australia and New Zealand Acquired InfoCash Holdings Limited, the 3rd largest non-bank ATM deployer in the United Kingdom, adding approximately 4,700 ATMs Increased the six month EBITDA 8% to $20.1 million Syndicated and expanded the Corporation's credit facilities Subsequent to the quarter, issued 2,800,000 new shares to the public at $23.35 per share for gross proceeds of $65.4 million Subsequent to the quarter, issued $125 million aggregate principle amount of 7- year senior unsecured notes bearing interest at 8.125% per annum Net proceeds of financing used to reduce debt related to the acquisitions of InfoCash Holdings Limited and Customers Limited Business continues to generate solid financial results with Funds from Operations payout ratio of 59%Management's Commentary"We are very excited about our successful completion of the transformative acquisitions of Customers and InfoCash, which have given us the opportunity to become a significant player in the worldwide ATM industry. With financing complete we look forward to integrating these businesses and continuing to grow shareholder value" said Jeffrey Smith, DirectCash's President and Chief Executive Officer.DirectCash will continue to pursue growth through additional accretive acquisitions as opportunities arise. DirectCash's stable, contracted revenue stream and dominant market positions will continue to provide consistent cash dividends to DirectCash's Shareholders.Customers Limited AcquisitionOn July 4, 2012 DCPayments announced it had successfully completed its acquisition of Customers (ASX: CUS), whereby DirectCash acquired all of the outstanding shares of Customers for $1.27 Australian dollars per share in cash.As a result of the acquisition of Customers, the largest deployer of ATMs in Australia, a total of approximately 6,600 ATM sites and related contracts were acquired by DirectCash in Australia and New Zealand. The acquisition provides the opportunity to grow the Customers ATM business platform in Australia and capitalize on the less mature Australian market, where transactions and gross profits per ATM are significantly greater than in the mature Canadian ATM market.The transaction is expected to be significantly accretive to DirectCash's funds from operations per share in the first fiscal year following the transaction. Please refer to the full press release available for download from www.SEDAR.com for more details.On August 8, 2012 DCPayments issued $125 million aggregate principal amount of seven year senior unsecured notes (the "Notes"). The Notes are direct senior unsecured obligations ranking pari passu with all other present and future senior unsecured indebtedness of DCPayments and bear interest at 8.125 % per annum, payable semi- annually in arrears. The Notes were offered on a private placement basis through a syndicate of underwriters. The net proceeds were used to repay the bond bridge loan drawn in respect of the Customers acquisition.On August 9, 2012 DCPayments completed a private placement of 2,800,000 common shares of the Company for $23.35 per common share. The net proceeds from the issue were used to repay the equity bridge loan, drawn in respect of the Customers acquisition, with the remainder of the proceeds added to working capital.Results of Operations for the three and six months ended June 30, 2012:Three months endedSix months endedJune 30June 302012201120122011Number of machinesATM terminals - active112,7587,89212,7587,892Debit terminals - active13,3633,2723,3633,272Number of transactionsATM transactions11,856,6158,770,08319,803,02116,984,209Debit terminal transactions2,896,5302,905,0735,563,0935,512,810Prepaid cash card activations707,836738,1241,464,6001,552,954Prepaid cash card transactions1,676,7031,837,5463,634,9353,958,9851DirectCash has included statistics only for sites that recorded a transaction in the last calendar month of the period indicated.Compared to the prior year, the number of active ATMs increased by 4,866. The net increase is primarily a result of the acquisition of approximately 4,700 ATM sites and related contracts of InfoCash Holdings Limited ("InfoCash") on May 25, 2012.ATM transactions increased during the three and six months ended June 30, 2012 compared to the prior year period due to the increased number of ATMs deployed, which was primarily a result of the acquisition of InfoCash.DirectCash's goal in the ATM business in Canada is to continue to maintain existing customer relationships, add sites and grow aggregate transactions through accretive acquisitions and to maximize site profitability through cost and quality control. DirectCash's international ATM operations are focused on adding ATM assets through organic growth, quality accretive acquisitions as they become available and maintaining existing customer relationships. In addition, DirectCash is implementing operating standards and reaping organizational efficiencies between the companies.On a year over year basis, the number of active debit terminals has increased by 91 due primarily to organic growth. Debit terminal transactions are relatively flat for the three and six months ended June 30, 2012 as compared to the prior year periods. DirectCash continues to pursue organic growth in this business segment and to grow market share by providing retailers with unique products and services to enhance the business viability of the debit terminal for the retailer.Prepaid card activations declined by 4% and 6% respectively for the three and six months ended June 30, 2012 compared to the prior year period. The MasterCard prepaid card program continues to find traction and displace some debit card activations.The decline in prepaid card transactions for the three and six months ended June 30, 2012 is primarily due to a decline in the sale of prepaid cash cards and a decline in the sale of telephone cards. Additionally contributing to the decrease was the decline in prepaid card activations and transactions, which can be attributed to regulations in the payday loan industry, in which DirectCash has a significant customer, that restrict the number of consecutive loans a customer can be issued and caused the customer to close approximately 40 low volume locations in Canada. Further contributing to the decline was a regulatory change during the period in the tax rebate business in Ontario, in which DirectCash has a customer. DirectCash continues to grow within existing customer relationships and international operations, as prepaid products continue to gain customer acceptance and confidence.The following table presents a summary of the DCPayments' selected consolidated financial information for the three and six months ended June 30, 2012 and 2011:Financial HighlightsThree Months EndedSix Months Ended(thousands except per share amounts)June 30June 302012201120122011RevenueRecurring services revenue28,03823,06851,94146,110Products revenue3,9855,0237,91910,557Interest income5543100118Total revenue$32,078$28,134$59,960$56,785Gross ProfitRecurring services and interest14,31113,56427,88426,911Gross profit margin50.9%58.7%53.6%58.2%Products2224734541,214Gross profit margin5.6%9.4%5.7%11.5%Total gross profit$14,533$14,037$28,338$28,125Total gross profit margin45.3%49.9%47.3%49.5%Operating Expenses & Net Finance costs:Personnel expenses3,5102,7206,2695,402Deal and acquistion costs2,121-2,372-Employee profit sharing plan / Long-term incentive plan331231851663Other expenses2,0641,5703,8563,357Depreciation of property and equipment1,5751,2092,7462,353Amortization of intangible assets3,8482,7416,5085,617Finance costs544425888814Realized gain on forw ard foreign exchange contracts(2,768)-(2,768)-Unrealized loss (gain) on foreign exchange(1,624)1(1,617)19,6018,89719,10518,207Net income before income taxes$4,932$5,140$9,233$9,918Current income tax expense (benefit)183(20)27473Deferred income tax expense8461,2681,8362,452Net Income$3,903$3,892$7,123$7,393Net income per share, basic0.280.280.520.54Net income per share, diluted0.280.280.510.53Add (deduct):Finance costs544425888814Deal and acquistion costs2,121-2,372-Depreciation of property and equipment1,5751,2092,7462,353Amortization of intangible assets3,8482,7416,5085,617Unrealized loss (gain) on foreign exchange(1,624)1(1,617)1Income taxes - Current183(20)27473Deferred income tax8461,2681,8362,452EBITDA$11,396$9,516$20,130$18,703EBITDA margin35.5%33.8%33.6%32.9%Total assets$419,290$161,566$419,290$161,566Total debt (1)277,17147,602277,17147,602Total debt net of cash (2)8,702(1,366)8,702(1,366)(1) Includes Revolving and Acquisition credit facilities, current and non current loans, and current and non current obligation under capital lease.(2) Total debt less cash in circulation and current and non current cash in escrow.RevenueTotal revenue increased by 14% and 6% respectively for the three and six months ended June 30, 2012, as compared to the prior year period. Revenue by line of business, which includes both recurring services and products revenue, is as follows:Revenue by Line of BusinessThree months endedSix months ended(thousands)June 30June 302012201120122011ATM Business$18,189$13,213$31,885$26,294Prepaid products business13,36014,40027,06429,466Debit terminal business5295211,0111,025Total Revenue$32,078$28,134$59,960$56,785Revenue by typeRecurring services$28,038$23,068$51,941$46,110Products3,9855,0237,91910,557Interest5543100118Total Revenue$32,078$28,134$59,960$56,785Revenue - Recurring ServicesRecurring services revenue relates to revenue earned from transaction processing activities, including DirectCash's ATM, debit terminal and prepaid product lines of business.The increase of 13% over 2011 in recurring services revenue for the six months ended June 30, 2012 is primarily attributable to the ATM line of business. The increase in ATM recurring services revenue can be attributed to the revenues generated from the additional ATM sites and related contracts acquired from InfoCash, as well as additional acquisitions made throughout 2011. ATM revenues include the revenue from the sale of ATM machines and parts, processing ATM transactions as well as miscellaneous revenues and interest received.The decrease in prepaid products revenue is primarily due to a decline in the sale of prepaid cash cards and a decline in the sale of telephone cards. Additionally contributing to the decrease was the decline in prepaid card activations and transactions, which can be attributed to regulations in the payday loan industry, in which DirectCash has a significant customer, that restrict the number of consecutive loans a customer can be issued and caused the customer to close approximately 40 low volume locations in Canada. Further contributing to the decline was a regulatory change during the period in the tax rebate business in Ontario, in which DirectCash has a customer. DirectCash continues to grow within existing customer relationships and international operations, as prepaid products continue to gain customer acceptance and confidence.Debit terminal revenue for the six months ended June 30, 2012 was consistent with prior year results.There is historic seasonality in processing transaction volumes, with the highest ATM transaction activity in Canada and the United Kingdom typically occurring in the second and third quarters of the year. The first and fourth quarters are traditionally DirectCash's weakest quarters in terms of processing transactions and gross profitability. In Mexico and Australia, seasonality in the ATM business is the opposite of what is seen from DirectCash's Canadian operations. DirectCash has eliminated the impact of seasonal fluctuations in cash flows to shareholders by equalizing monthly cash dividends.Revenue - ProductsProduct revenue includes sales of ATM machines, debit terminals and related parts, as well as prepaid products, consisting of (a) prepaid cash cards (debit and credit) and (b) prepaid telephone cards (both physical ("hard cards") and electronic ("virtual vouchers")).For the three and six months ended June 30, 2012 revenue from product sales decreased by 21% and 25% respectively compared to the prior year period. The decrease is primarily due to a decline in the sale of prepaid cash cards, telephone cards and debit terminals. The decrease in the sale of prepaid cash cards is a result of timing of sales, as customers order intermittently in large quantities to benefit from volume discounts. The decrease in the sale of debit terminals is a result of customer preference towards full placement and rental of units rather than full ownership.Gross ProfitsOn an aggregate basis, gross profits have increased by 4% and 1% respectively for the three and six months ended June 30, 2012, as compared to the prior year period. Gross profit by line of business, which includes both recurring services and products revenue, is as follows:Gross profit by Line of BusinessThree months endedSix months ended(thousands)June 30June 302012201120122011ATM Business7,965$7,185$14,894$14,374gross profit margin43.8%54.4%46.7%54.7%Prepaid products business6,1516,44712,63912,949gross profit margin46.0%44.8%46.7%43.9%Debit terminal business417405805802gross profit margin78.8%77.7%79.6%78.3%Total Gross Profit$14,533$14,037$28,338$28,125gross profit margin45.3%49.9%47.3%49.5%Gross profit by typeRecurring services and interest$14,311$13,564$27,884$26,911gross profit margin50.9%58.7%53.6%58.2%Products2224734541,214gross profit margin5.6%9.4%5.7%11.5%Total Gross Profit$14,533$14,037$28,338$28,125gross profit margin45.3%49.9%47.3%49.5%Gross Profitability - Recurring ServicesTotal gross profits from recurring services revenue and interest income for the three and six months ended June 30, 2012 increased by 6% and 4% respectively over the prior year period.The increase in gross profits during the period ended June 30, 2012 for recurring services can be attributed to the following factors:the addition of ATMs and related contracts from the acquisition of InfoCash on May 25, 2012; the impact of the additional ATM acquisitions made during 2011, and; settlement on a number of outstanding legal claims.The ATM gross profit margin decreased during the three and six months ended June 30, 2012 as compared to the prior year period primarily as a result of lower margin contribution from the ATMs added through the acquisition of InfoCash on May 25, 2012, as well as increased armoured car expenses related to the increased number of ATMs that DirectCash has armored carriers load compared to the prior year period.The prepaid products gross profit margins increased during the three and six months ended June 30, 2012 as compared to the prior year period as a result of fees associated with bank accounts and related products offered through DirectCash's strategic alliance with DC Bank.The debit terminal gross margins increased slightly during the period ended June 30, 2012 as compared to the prior year period as a result of higher per transaction revenues collected during the first two quarters of 2012.Gross Profitability - ProductsGross profit from the sale of products for the three and six months ended June 30, 2012 decreased by 53% and 63% respectively from 2011 levels. The decrease can be explained primarily by lower margin contributions on the sale of prepaid cash cards and debit terminals as compared to the prior year period. The decrease in the sale of prepaid cash cards is a result of timing of sales, as customers order intermittently in large quantities to benefit from volume discounts. The decrease in the sale of debit terminals is a result of customer preference towards full placement and rental of units rather than full ownership.DirectCash has a strategic goal of keeping ATM and debit terminal purchase prices as low as possible for the DirectCash customer in order to maximize the number of machines that can be placed. DirectCash also introduced financing options that enables customers to pay for machines and security upgrades over a period of time. DirectCash believes that this strategy will result in additional long-term revenue generating services contracts.Selling, General & Administrative Expenses ("SG&A")SG&A is made up of personnel and other expenses. For the three and six months ended June 30, 2012 SG&A expenses increased by 30% and 16% respectively over the prior year period.The increase is primarily the result of increased costs related to salaries and benefits associated with the acquisition of InfoCash, higher salaries and benefits incurred from the addition of employees brought on to assist in DirectCash's growth and implementation of network ATM chip upgrades required to be completed by the end of 2012, additional fees associated with compliance related to Anti-Money Laundering and to the bank account product offered through DirectCash's strategic alliance with DirectCash Bank. Additionally, DirectCash has incurred additional costs associated with ATM security and chip compliance during the six month period of approximately $700 thousand. Increased sales expenses were incurred as DirectCash moves to regain its presence within northern Canada in the ATM business, with the expiry of the contract of an ATM customer in the first quarter of 2012 that impacted 175 ATMs, and increase its presence within this geographic location in the prepaid products business, which DirectCash believes is a strategic revenue opportunity.As a percentage of gross profits, SG&A was 38% (YTD - 36%) during the three months ended June 30, 2012 compared to 31% (YTD - 31%) for the same period last year.Employee Profit Sharing Plan ("EPSP")Details of the Employee Profit Sharing Plan can be found in the notes to the 2011 Year End Financial Statements.During 2011 DirectCash established an EPSP plan under which it receives services from employees as consideration for cash payments paid to the EPSP plan trustee (which in turn are later used by the trustee to purchase shares of DCPayments or to make tax remittances on behalf of the employees). For 2011 and subsequent years, share-based payment plan awards are made pursuant to the EPSP plan.Finance CostsFor the six month ended June 30, 2012 finance costs increased by 9% over the prior year period. The increase is primarily due to interest on bridging facilities.All DirectCash debt is currently on floating interest rates. A one percent change in interest rates would result in an approximate $388 thousand change in finance costs for the six month period.Realized Gain on Forward Foreign Exchange ContractsDirectCash entered into a series of foreign exchange forward contracts (A$222 million) with two international financial institutions in May and June 2012. The weighted average foreign exchange rate for those contracts was $1.0233 CDN and the actual foreign exchange rate as at the contracts' maturity date on June 28, 2012 was $1.0358 CDN resulting in a total realized foreign exchange gain of $2.8 million.Unrealized Gain (Loss) on Foreign ExchangeAs at June 30, 2012, DirectCash had total of A$222 million cash in escrow. The foreign exchange rate was $1.0431 CDN on June 30, 2012 resulting in an unrealized foreign exchange gain of $1.6 million in addition to the $2.8 million realized gains discussed above. This gain has been excluded from EBITDA.Deal and Acquisition CostsFor the three and six month ended June 30, 2012, DirectCash incurred $2.1 million and $2.4 million, respectively, of acquisition costs for the InfoCash acquisition completed on May 25, 2012 and Customers acquisition completed on July 4, 2012 (see "Outlook" section). The deal and acquisition costs have been excluded from EBITDA.Net IncomeNet income for the three and six months ended June 30, 2012 was consistent with the prior year balances.The disparity between net income and cash dividends is primarily due to amortization of intangible assets related to ATM, debit terminal and prepaid product contracts. Typically, these contracts include automatic renewals for a further 5-7 year period, and a right of first refusal to match a competitor's bona fide offer on renewal unless the customer terminates the contract within a specified time period. Thus, while a contract acquired by DirectCash may have a fixed initial term (which is the time period over which amortization of this intangible asset occurs) DirectCash's experience is that DirectCash is usually able to keep the applicable ATMs attached to the DirectCash network with no or little capital expenditure. Also, any ATM added by organic growth (i.e. through the DirectCash sales force) has a much lower capital cost than ATM locations added through acquisition.EBITDAFor the three and six months ended June 30, 2012, EBITDA increased by 20% and 8% respectively over prior year levels, as compared with the respective 4% and 1% increases in gross profits. This reflects the realized gain on foreign exchange forward contracts. The positive impact of the total gain has been reduced by higher SG&A costs, as DirectCash has incurred increased costs related to InfoCash in the United Kingdom. In addition, DirectCash had increased sales expenses as DirectCash moves to regain its presence within northern Canada, with the expiry of the contract of an ATM customer in the first quarter of 2012 that impacted 175 ATMs, and expand DirectCash's presence within this geographic location in the prepaid products business, which DirectCash believes is a strategic revenue opportunity. As a percentage of revenue, EBITDA was 36% and 34% respectively during the three and six months ended June 30, 2012 and was consistent with 34% and 33% during the prior year periods.Funds from operationsThree months endedSix months endedJune 30June 30(thousands, except for per share amounts)2012201120122011Per consolidated financial statements:Net income$3,902$3,892$7,122$7,393Add/(Deduct):Deferred income tax expense8461,2681,8362,452EPSP / LTIP expense331231851663Unrealized loss (gain) on foreign exchange(1,624)1(1,617)1Depreciation of property and equipment1,5751,2092,7462,353Amortization of intangible assets3,8482,7416,5085,6178,8789,34217,44618,479Productive capacity maintenance(530)(461)(1,119)(1,171)Funds from operations$8,348$8,881$16,327$17,308Funds from operations per share$0.60$0.65$1.18$1.26Dividends declared$4,775$4,775$9,549$9,550Dividends declared per share$0.34$0.35$0.69$0.69Funds from operations payout ratio57.2%53.8%58.5%55.2%Cash dividends and productive maintenance capital programs have been historically funded via cash from operations, while growth capital expenditures have primarily been funded with debt. Over time, additional borrowing and equity issues may be required to increase productive capacity.Neither net cash from operating activities nor funds from operations can be assured to continue at historical levels. See "Key Business Risks" for a list of factors which could negatively impact cash flows. DirectCash intends to utilize DirectCash's credit facilities as part of its capital structure in order to fund future capital growth, operating within the covenants of DirectCash's credit facility, thus enhancing funds from operations.Capital ExpendituresDirectCash incurred the following expenditures of a capital nature:Capital ExpendituresThree months endedSix months ended(thousands)June 30June 302012201120122011Per consolidated financial statements:Equipment$778$1,778$1,779$3,124Intangible assets1952720460Acquisitions23,156-23,156-$24,129$1,805$25,139$3,184Split between growth and maintenance:Growth capital$23,599$1,344$24,020$2,013Maintenance capital5304611,1191,171$24,129$1,805$25,139$3,184Growth capital expenditures relate to acquisitions and other expenditures that increase DirectCash's productive capacity, while maintenance capital expenditures maintain productive capacity at existing levels.Growth capital maintenance expenditures for the period are higher as compared to the prior year period due to the acquisition of InfoCash in the United Kingdom during the second quarter. Growth capital expenditures can vary widely between reporting periods due to the intermittent nature and varying size of acquisitions.Business AcquisitionsOn May 25, 2012 DirectCash Management UK Ltd. completed an acquisition of 100% of the shares of InfoCash for consideration of £11.8 million (approximately $19 million CDN). InfoCash operates a portfolio of ATMs in the United Kingdom. A total of 4,700 ATM sites and related contracts were acquired as well as the related business and staff.The following summarizes the InfoCash acquisition completed during the period ended June 30, 2012. The allocations are preliminary and subject to change pending receipt of final information.Identifiable assets acquired and liabilities assumed:(thousands)CDN $GBPAssets acquiredIntangible assets22,99214,385Deferred tax liability(5,563)(3,481)Property and Equipment5,5893,503Deferred Charges21Working capital7748Merchant liabilities(3,560)(2,227)Obligation under finance lease(570)(357)Total$18,966£11,872Acquisition Costs Recovered11572Total Consideration Paid$18,851£11,800The acquired assets consisted mainly of the residual rights in contracts to operate and place ATM machines at certain locations and software to manage these machines and related business. The assets also included equipment, inventory, accounts receivable and prepaid expenses. The merchant liabilities were repaid in June 2012.This business combination has resulted in the following approximate contribution to DC Payments:(thousands in CDN)RevenueNet Income beforetaxesSince acquisition date$5,738$70Had the acquisition occurred on January 1, 2012, for the six months ended June 30, 2012, DirectCash estimates that pro-forma revenue and net income before taxes would have been approximately $77 million and $6 million, respectively. The pro-forma net income before taxes includes approximately $4 million of amortization expense on the acquired intangible assets for the six month period. Pro-forma net income before taxes would have been approximately $10 million if the impact of the amortization had been excluded.Asset AcquisitionsDuring the second quarter of 2012, DirectCash acquired certain assets of several privately held corporations engaged in ATM services for consideration of $715 thousand plus vault cash, subject to a customary performance holdback and normal course purchase adjustments. The following summarizes the acquisitions completed during the period ended June 30, 2012 (allocations are preliminary and subject to change pending receipt of final information).(thousands)2012Assets acquiredIntangible assets$669Property and Equipment39Working capital7Total consideration$715Vault cash22Total consideration plus vault cash$737The majority of the assets acquired consist of the residual rights in contracts to operate and place ATM machines at certain locations. These contracts are valued based on the remaining term of each agreement and the expected net cash flow from that agreement value is allocated to intangible assets and amortized in accordance with DirectCash's policy.Related party transactionsDirectCash is party to various services and marketing agreements with DirectCash Bank ("DC Bank"), whereby DirectCash provides transaction processing and technology services to DC Bank and DC Bank provides services and products to DirectCash or to DirectCash customers for a fee.DC Bank is indirectly owned by two of the original principals of DirectCash, who continue to maintain significant ownership in DCPayments.One of DC Bank's significant shareholders is also DCPayments' President and CEO. Another of DC Bank's significant shareholders is also a director of DCPayments. During the six months ended June 30, 2012 DirectCash paid $738 thousand (2011 - $729 thousand) of fees to DC Bank associated with the various agreements with DC Bank.All contracts with DC Bank are negotiated at market terms and rates and are approved by the independent members of DCPayments' Board of Directors.DirectCash LP and Processing Partnership have provided limited guarantees to a financial institution relating to DC Bank. These guarantees were provided in connection with facilitating a prepaid card service offering by DC Bank that DirectCash views as beneficial for DirectCash's customers and is complementary to DirectCash's product and service offerings.Liquidity and Capital ResourcesDCPayments believes that the funds generated from operations will be sufficient to allow DCPayments to meet ongoing requirements for working capital, maintenance capital expenditures including investments in technology capital, interest expense, and cash dividends to shareholders.DCPayments' actual cash generated from operations will be dependent upon future financial performance, which in turn will be subject to financial, tax, business and other factors.As of June 30, 2012, DCPayments utilized approximately $49.4 million of total available credit facilities of $100 million. A summary of DirectCash's available credit at June 30, 2012 is as follows:Credit facilities(thousands)UtilizedLimitAvailableRevolving credit facility$9,442$60,000$50,558Acquisition credit facility40,00040,000-$49,442$ 100,000$50,558The revolving credit facility is used for ATM cash loading, working capital requirements and commercial letters of credit. This credit facility is demand in nature and since October 2011 bears interest at the Bank's prime lending rate plus 0.25%. The rate was reduced from prime plus 0.375%. In addition, DirectCash has an outstanding letter of credit in favour of MasterCard International of US$ 2.5 million (CDN$ 2.5 million) relating to DCPayments' prepaid MasterCard program.The acquisition credit facility is demand in nature and is utilized for the acquisition of additional ATM and Debit Terminal network and Prepaid Product assets, and general corporate acquisitions in complimentary business lines. The facility bears interest at the Bank's prime lending rate plus 0.25% or at banker's acceptance rates plus 1.75% per annum. The rate was reduced from prime plus 0.375% in October 2011.Notwithstanding the demand nature of the facilities, there are no scheduled principal repayments.DirectCash is subject to primary lending covenants including Funded Debt to Recurring Quarterly Revenue, Fixed Charge Cover Ratio and Senior Debt to EBITDA. As at June 30, 2012, DriectCash is in compliance with all loan covenants and anticipates continuing to do so in the future. A breach of DirectCash's bank loan covenants could result in the triggering of remedies by DirectCash's lenders, which could curtail dividend payments to shareholders.In order to fund the Customers acquisition and retire the Customers debt, on June 22, 2012 certain credit facilities, were established with a primary lender in favour of DirectCash. These facilities included a Revolving Facility, a Term Loan, an Equity Bridge Loan and a Bond Bridge Loan and are described below. On July 23, 2012, the Revolving Facility and Term Loan were amended and restated with a syndicate of lenders. The credit facilities established under the debt agreements consist of the following:Revolving Facility: DirectCash has a $115 million five-year revolving credit facility available for general corporate purposes which replaced the existing credit facilities and was accessed to fund a portion of the purchase price payable for the Customers acquisition. Interest and fees payable in respect of the revolving facility are based upon the ratio of consolidated funded debt to consolidated EBITDA (as defined in the debt agreements) and are adjusted quarterly. The interest rate has been initially set at the primary lender's prime rate plus 2.25%. The new revolving facility matures on June 28, 2017 and there were no changes to the pre-existing revolving facility as at June 30, 2012. Term Loan: DirectCash has an $85 million five-year non-revolving amortizing term credit facility which was accessed in part to fund a portion of the purchase price payable for the Customers acquisition, with the balance of the available facility drawn on July 4, 2012 to replace the existing credit facilities of DirectCash. Interest and fees payable in respect of the term loan are also based upon the ratio of consolidated funded debt to consolidated EBITDA (as defined in the debt agreements) and are adjusted quarterly. The interest rate has been initially set at the primary lender's prime rate plus 2.25%. 50% of the term loan amortizes over five years in quarterly installments commencing February 28, 2013 and matures on June 28, 2017. Equity Bridge Loan: DirectCash has a $50 million one-year non-revolving equity bridge facility. The equity bridge was utilized in full to fund a portion of the purchase price payable for the Customers acquisition. Interest and fees payable on the equity bridge are based upon the ratio of consolidated funded debt to consolidated EBITDA (as defined in the debt agreements) and the time elapsed following the funding date. The interest rate has been initially set at the interest rate applicable for the revolving and term facilities plus 2.5%. The equity bridge is payable on June 28, 2013 and 100% of the net proceeds of the planned equity offering (see "Outlook" section) must be used to pay down the equity bridge prior to being applied for other purposes. On August 9, 2012, this facility was repaid in full. Bond Bridge Loan: DirectCash has a $125 million one-year non-revolving bond bridge facility. The bond bridge was utilized in full to fund a portion of the purchase price payable on the Customers acquisition. Interest and fees payable in respect of the bond bridge are based upon the credit ratings received from each of Moody's Investors Service, Inc. and Standard & Poor's Ratings Services at the date of calculation and the time elapsed following the funding date. The interest rate has been initially set at the primary lender's prime rate plus 6%. The bond bridge is payable on June 28, 2013 and 100% of the net proceeds of the planned high yield offering (see "Outlook" section) must be used to pay down the bond bridge. On August 8, 2012, this facility was repaid in full.Under each debt agreement, DirectCash is subject to certain financial covenants and has agreed that the ratio of consolidated funded debt to consolidated EBITDA (as defined in the debt agreements) will not exceed 3.5 to 1.0, with the permitted ratio decreasing to 2.5 to 1.0 by July, 2015, and that the ratio of EBITDA (as defined in the debt agreements) less unfunded capital expenditures, dividends and cash taxes to interest expense and scheduled principal payments on funded debt will equal or exceed 1.25 to 1.0. The financial covenants are adjusted for the first three quarters following the Customers acquisition and thereafter are calculated on a four quarter trailing basis. DCPayments has also agreed that during its first four fiscal quarters following the closing of the Customers acquisition it will not pay dividends or make other distributions to DCPayments shareholders in excess of $1.38 per common share per annum. A breach of any of these covenants or the occurrence of any other event of default under the debt agreements would, in the absence of a consent or amendment being granted by the lenders, result in DirectCash being unable to draw additional funds under the revolving facility or pay further dividends to DCPayments' shareholders and could result in the lenders exercising their remedies under the debt agreements.As at June 30, 2012, amounts drawn on the new facilities were as follows:Loans(thousands)UtilizedLimitAvailableBond Bridge facility$125,000$125,000$-Equity Bridge facility$50,000$50,000$-Term-Loan Facility$52,180$85,000$32,820$227,180$260,000$32,820The bridge facilities were drawn to fund the Customers' acquisition. As at July 4, 2012, the acquisition has been completed. Subsequent to the bond and equity offering, those bridge facilities were repaid.Financial Instruments and Risk ManagementDuring the three months ended June 30, 2012, DirectCash entered into a series of foreign exchange forward contracts (A$222 million) with two international financial institutions. The contracts were entered into to manage the foreign currency risk associated with the Customers acquisition which was payable in Australian dollars. The weighted average foreign exchange rate for those contracts was $1.0233 CDN and the actual foreign exchange rate as at the contracts' maturity date on June 28, 2012 was $1.0358 CDN resulting in a total realized foreign exchange gain of $2.8 million. As at June 30, 2012, the foreign exchange rate was $1.0431 CDN resulting in an unrealized foreign exchange gain of $1.6 million on the A$222 million cash held in escrow.Changes in Capital StructureDuring the period and in order to fund the Customers acquisition and retire the Customers debt, certain credit facilities, as described under Liquidity and Capital Resources, were established by a syndicate of lenders in favour of DirectCash.As at August 13, 2012 the number of common shares outstanding was 16,639,279.Significant CustomersDirectCash had a customer which accounted for approximately 19% of DirectCash's overall revenues for the quarter ended June 30, 2012 (2011 - 24%). The revenue from this customer is spread across all lines of business. DirectCash has contractual agreements to provide services to this customer.Off Balance Sheet ArrangementsPursuant to the InfoCash acquisition, DirectCash is party to a bailment facility agreement with a United Kingdom Chartered Bank that sets out the terms and conditions on which DirectCash is given custody of cash owned by the United Kingdom Chartered Bank and utilized in the ATM operations to cash load ATMs. All such cash remains the property of the United Kingdom Chartered Bank and is not an asset or liability of DirectCash.DirectCash has an outstanding commercial letter of credit with MasterCard International in the amount of US$2.5 million (CDN$2.5 million) relating to the prepaid MasterCard program.DirectCash is also party to a bailment facility agreement with an Australian Chartered Bank related to the Customers acquisition.Additional InformationAdditional information about DirectCash, including DirectCash's Annual Information Form and other public filings is available on SEDAR (www.sedar.com) and on DirectCash's website (www.directcash.net).Non-IFRS MeasuresThere are a number of financial calculations that are not defined performance measurements under IFRS but which DCPayments believes are useful and accepted performance measurements utilized by the investing public in assessing the overall financial performance of corporations.Earnings before interest, taxes, depreciation and amortization ("EBITDA")EBITDA represents Net Income plus finance costs, depreciation, amortization, acquisition costs and taxes and excludes unrealized foreign exchange gain (loss). EBITDA is not a defined performance measure under IFRS. DCPayments believes that EBITDA is a useful supplementary disclosure commonly used by the investing community to assess and compare cash flows between entities. DCPayments EBITDA may differ from similar computations as reported by other issuers and, accordingly, may not be comparable to EBITDA as reported by such issuers. The most directly comparable IFRS measure is Net Income. Reconciliation between EBITDA and Net Income is disclosed in the "Financial Highlights" schedule.EBITDA marginEBITDA margin means EBITDA expressed as a percentage over total revenue.EBITDA per shareEBITDA per share means the portion of EBITDA allocated to each outstanding common share.Funds from operations and funds from operations per shareFunds from operations and funds from operations per share are non-IFRS measures used by DCPayments as an indicator of financial performance. Readers are cautioned that funds from operations is not a defined performance measure under IFRS and that funds from operations cannot be assured to continue at equivalent levels in the future. DCPayments calculates funds from operations as equal to the net cash from operating activities before changes in non-cash working capital, after provision for productive capital maintenance capital expenditures (see discussion below). DCPayments' funds from operations and funds from operations per share may differ from similar computations as reported by other issuers and, accordingly, may not be comparable to funds from operations and funds from operations per share as reported by such issuers.Beginning January 1, 2011 (starting with the January 31, 2011 record date), shareholders of DCPayments have received monthly payments in the form of dividends, with the initial monthly dividend set at $0.115 per Common Share. All dividends are eligible dividends for the purpose of the Income Tax Act (Canada) unless indicated otherwise. Dividends are funded from cash flows generated by the operation of the business. As of January 1, 2011, all of the income generated at the level of the various subsidiaries within DirectCash income is taxable by applicable government authorities with the remaining after-tax funds either being retained by the subsidiary or distributed/dividended up to DCPayments (where it can be made available for payment of dividends by DCPayments). Continued future distribution of dividends (and the amount of any dividends) is subject to DCPayments' Board of Directors approval. DCPayments' Board of Directors is not obligated to distribute all net available cash as dividends to shareholders.Productive capital maintenance expendituresDCPayments differentiates capital expenditures between growth and productive capital maintenance ("Maintenance Capital"). There is no such distinction under IFRS. However, DCPayments believes it is important to differentiate between them as maintenance capital expenditures represent a discretionary adjustment to funds from operations while growth capital does not.Maintenance capital expenditures are defined as expenditures required to service and maintain DirectCash's existing productive capacity, while growth capital is expended to increase DirectCash's productive capacity by adding additional sources of revenue not currently in existence. Current measures of productive capacity that DCPayments utilizes include ATMs and debit terminals under contract (see "Operational Highlights"), software and hardware upgrades to existing infrastructure, ATM and debit terminal equipment upgrades necessary to meet changing regulatory requirements, contract extension incentives, and fleet vehicle purchases and upgrades, are some examples of maintenance capital expenditures. Examples of growth capital expenditures include the acquisition of a competitor's assets, the cost of an ATM in a new location, or technology costs related to new sources of revenue.Readers are cautioned that productive capital maintenance expenditure is not a defined performance measure under IFRS. DCPayments computation of productive maintenance capital expenditure may differ from similar computations as reported by other issuers and, accordingly, may not be comparable to maintenance capital expenditures as reported by such issuers.Non-cash working capitalNon-cash working capital is not a defined IFRS measure. DCPayments calculates non- cash working capital as current assets less current liabilities, but excluding cash and credit facilities. A summary of this calculation is provided later in the Management's Discussion and Analysis for the three and six months ended June 30, 2012.Cautionary statement regarding forward-looking information and statementsThis MD&A offers our assessment of DirectCash's future plans and operations and contains "forward-looking information" relating to future events as defined under applicable Canadian securities legislation. DirectCash's actual results or performance could differ materially from those expressed in, or implied by, this forward-looking information. DirectCash can give no assurance that any of the events anticipated will transpire or occur or, if any of them do, what benefits or costs we will derive from them. Forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond DirectCash's ability to control, including but not limited to the impact to DirectCash's business, general economic conditions, consumer spending, borrowing trends and regulatory changes to name a few. Additional risk and uncertainties are described in DCPayments' Annual information Form for the year ended December 31, 2011 which is available at www.SEDAR.com and in the "Key Business Risks" section of the Management's Discussion and Analysis for the three and six months ended June 30, 2012.The forward-looking information contained in this MD&A is expressly qualified by this cautionary statement. Certain statements that contain words such as "could", "believe", "expects", "expected", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words relating to matters that are not historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities legislation.The assumptions and estimates relating to the forward-looking information referred to above are updated quarterly and except as required by law, we do not undertake to update any other forward-looking information.Forward-looking statementsForward-looking information and statements contained in this MD&A include statements related to DirectCash's projected growth in Canada, Mexico, United Kingdom and Australia in the ATM business, projected growth in the prepaid and debit terminal business, accretive acquisitions on a go forward basis, expansion of DirectCash's merchant base through new and innovative products, impact on acquisitions in United Kingdom and Australia, ability to continue to acquire long-term recurring services contracts and expected increase in capital expenditures due to regulatory mandated security upgrade changes.Readers are cautioned that our expectations, estimates, projections and assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. With respect to forward-looking statements contained within this MD&A, the following key assumptions have been made:DirectCash's expectations with respect to growth in international operations in Mexico, UK and Australia are based on our current strategic plan and forecasts. DirectCash's projection of growth in the prepaid and debit terminal business is based on our strategic plan. DirectCash's plan on developing and offering new and innovative products is based on strategic plan. DirectCash's assessment on the future impact of the UK and Australia (subsequent event) acquisitions is based on the financial performance and operational data of the acquired entities. DirectCash's expectation of ability to continue to acquire long-term recurring services contracts is based on our existing contracts schedule, forecast and budget. DirectCash's projection of increase in capital expenditures is based on our view of the mandated regulatory security upgrade requirements and age of capital assets currently in use by DirectCash.Additional information about DCPayments is available on SEDAR (www.sedar.com) or DCPayments website at www.directcash.net.FOR FURTHER INFORMATION PLEASE CONTACT: Brian B. KatholDirectCash Payments Inc.Chief Financial Officer(403) 387-2103(403) 451-3003 (FAX)bkathol@directcash.netORAmanda J. GallacherDirectCash Payments Inc.Investor Relations(403) 387-2158(403) 451-3058 (FAX)investorrelations@directcash.netwww.directcash.net