On August 7, 2013, Cardtronics Europe Limited (“Cardtronics Europe”), a newly formed wholly-owned subsidiary of Cardtronics, Inc. (the “Company”), entered into, and consummated the transactions contemplated by, the Share Sale and Purchase Agreement (the “Purchase Agreement”) with Payzone Ventures Limited (the “Seller”) and Jonathan Simpson-Dent, Rikki Dinsmore, Mark Edwards, Andreas Raabe, Alastair Mayne and Tim Halford (collectively, the “Warrantors”) to purchase all of the outstanding shares issued by Cardpoint Limited (“Cardpoint” or “Cashzone,” which is the primary trading name of the business in the U.K.) from the Seller. The significant terms of the Purchase Agreement were previously reported by the Company on August 7, 2013 in the Current Report on Form 8-K filed on that date.

Pursuant to the Purchase Agreement, Cardtronics Europe acquired all of the outstanding shares issued by Cardpoint for purchase consideration of £99,999,999 (the “Purchase Price”) in cash, or approximately U.S. $152 million, which includes the aggregate amount required to be paid (including principal and interest) in order to fully discharge all of Cardpoint’s outstanding indebtedness to the Seller at closing. Additionally, as part of the Purchase Agreement, Cardtronics Europe entered into a locked box agreement, under which additional cash at closing was paid to the Seller in the amount of £5,885,680 or approximately U.S. $9 million as additional consideration for earnings since February 28, 2013.  No further working capital adjustments are required under the Purchase Agreement.  The Company also paid to certain members of Cardpoint’s management, transaction bonuses on behalf of the Seller in an aggregate amount of £463,729 or approximately U.S. $0.7 million, pursuant to the Purchase Agreement. The total amount paid for the acquisition was £105,421,950 at closing, which was financed through borrowings under the Company’s amended revolving credit facility, and has been preliminarily allocated as disclosed below in Note 1, Preliminary Acquisition Accounting.

The unaudited pro forma condensed consolidated financial statements presented give effect to the acquisition of Cardpoint as if it had occurred on June 30, 2013 for the presentation of the unaudited pro forma condensed consolidated balance sheet as of June 30, 2013, and on January 1, 2012 for the presentation of the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2012 and for the six months ended June 30, 2013. The pro forma condensed consolidated balance sheet as of June 30, 2013 was based on the historical unaudited consolidated balance sheets of the Company and Cardpoint as of June 30, 2013. The pro forma condensed consolidated statement of operations for the six months ended June 30, 2013 was based on the historical unaudited consolidated statements of operations of the Company and Cardpoint for the six months ended June 30, 2013. The pro forma condensed consolidated statement of operations for the year ended December 31, 2012 was based on the historical audited statement of operations of the Company for the year ended December 31, 2012 combined with the historical audited statement of operations of Cardpoint for the year ended September 30, 2012. Cardpoint’s revenue and net income for the three months ended December 31, 2012 were $25.4 million and $2.5 million, respectively. Certain amounts from Cardpoint’s historical combined financial statements have been reclassified to conform to the Company’s presentation. Additionally, the unaudited pro forma condensed consolidated financial statements give effect to certain adjustments necessary to conform Cardpoint’s historical combined financial statements that were prepared under U.K. generally accepted accounting principles (“GAAP”) to U.S. GAAP.

The unaudited pro forma condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").  The unaudited pro forma condensed consolidated financial statements should be read along with the Company's Annual Report on Form 10-K for the year ended December 31, 2012 and Quarterly Report on Form 10-Q for the quarter and six months ended June 30, 2013, which include a summary of the Company's significant accounting policies and other disclosures.

The pro forma adjustments presented are based on certain estimates and assumptions in accordance with the Company’s accounting policies. The Company’s management believes that its assumptions provide a reasonable basis for presenting all of the significant effects of the transactions contemplated and that the pro forma adjustments give appropriate effect to these assumptions and are properly applied in the unaudited pro forma condensed consolidated financial statements.  The unaudited pro forma condensed consolidated financial statements do not reflect the impacts of any potential operating efficiencies, savings from expected synergies, or costs to integrate the operations. The unaudited pro forma condensed consolidated financial statements are presented for informational purposes only and are not necessarily indicative of the financial position or the results of operations of the combined company had the acquisition been completed as of the indicated dates or of the results that may be achieved in the future.

(1) Preliminary Acquisition Accounting

The unaudited pro forma condensed consolidated financial statements reflect a total consideration transferred of approximately £105.4 million, or $160.3 million, which has been preliminarily allocated as follows as of June 30, 2013:

The acquisition of Cardpoint has been accounted for under the purchase method of accounting in which assets acquired and liabilities assumed are recorded at their estimated fair values. Goodwill is generated to the extent that the consideration exceeds the fair value of assets acquired. The Company is in the process of determining the purchase price allocation, which will allocate the excess of purchase price over the fair value of the acquired assets to goodwill, and has performed a preliminary allocation of the purchase price. Estimates of useful lives and estimated fair values of tangible and amortizable intangible assets will be finalized after the Company reviews all available data including, but not limited to, appraisals and internal assessments. As a result, the final allocation of the excess purchase price over the fair value of the identifiable assets acquired could differ from what is presented herein.

(2) Pro Forma Adjustments

a.Estimated fair value adjustments

The following pro forma adjustments were made to Cardpoint’s historical balance sheet accounts to reflect the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date:

The adjustment for Prepaid expenses, deferred costs, and other current assets above relates primarily to the reduction in upfront merchant payments that has been included in the valuation of certain customer contracts included in Intangible assets (see note c. below).

Various entities in the Cardpoint group have accumulated net operating loss (“NOL”) carryforwards and capital allowances (excess unused depreciation deductions for U.K. tax purposes) that may be used or claimed in the future, and under current U.K. law, may be carried forward indefinitely.  The Deferred tax asset adjustment represents the amount of deferred tax assets that has been recorded as of the acquisition date that has been determined to be more likely than not to be realized in the future based on Cardpoint’s recent operating history and expectations for future profitability. 

b.Property and equipment, net

The fair value of property and equipment acquired and the related depreciation (using the straight-line method) are as follows (amounts in thousands):

c.Goodwill and Intangible assets, excluding deferred financing costs

The historical goodwill balance of Cardpoint was eliminated as of June 30, 2013 and the goodwill resulting from the transaction, as calculated in Note 1, Preliminary Acquisition Accounting above, was recorded.

The estimated fair value of identified finite-lived intangible assets, excluding deferred financing costs, that were recorded and the related amortization (using the straight-line method) are as follows (amounts in thousands):

Under U.K. GAAP, identifiable intangible assets are not required to be separately identified and recorded on the balance sheet in connection with a business combination.  Additionally under U.K. GAAP, goodwill is amortized over an estimated period of time on a straight-line basis.  Under U.S. GAAP, identifiable intangible assets are required to be separately identified and determined to be indefinite-lived or finite-lived subject to amortization over an estimated useful life using a systematic and rational method to match the pattern of use of the asset.  Under U.S. GAAP, goodwill is not amortized, but instead is tested at least annually for impairment or more frequently as events may trigger a need for an impairment analysis.  Identifiable indefinite-lived intangible assets are also required to be tested for impairment under U.S. GAAP at least annually or more frequently as events may trigger a need for an impairment analysis. The amount of amortization expense eliminated above related to the historical Cardpoint balance represents the elimination of goodwill amortization that was recorded under U.K. GAAP, and is replaced by the amortization of the estimated fair value of identified intangible assets in connection with the acquisition.

d.Asset retirement obligations

Historically, Cardpoint did not record a liability for asset retirement obligations (“AROs”) due to its assessment that the probability of incurring costs to restore ATM sites to their original condition was remote.  However, the Company believes that these costs are probable based on its experience and expectations in the future; therefore, has recorded the following AROs for the estimated costs to deinstall its ATMs and estimated costs to restore the ATM sites to their original condition, consistent with the Company’s accounting policy.  The estimated liabilities recorded as of the acquisition date and the related accretion (using the effective interest method) are as follows (amounts in thousands):

e.Current and long-term debt

The historical long-term debt balances of Cardpoint, which were all with its previous parent company and were classified as current as they were payable on demand, were eliminated as of June 30, 2013 as these amounts were satisfied on the acquisition date in accordance with the terms of the Purchase Agreement.

To fund the acquisition, the Company borrowed £50.0 million (approximately $76.0 million) in British pounds and approximately $84.3 million in U.S. dollars under its amended revolving credit facility, for a total of approximately $160.3 million, which has a termination date of July 2016.  The interest rates below represent the interest rates effective as of the acquisition date and are variable based on a floating interest rate index and a fixed spread. The pro forma adjustments made to current and long-term debt and interest expense are as follows (amounts in thousands):

A variance of 1/8 percent variance from the above interest rate would have affected the pro forma interest expense by $0.1 million and $0.2 million for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively.

f.Deferred financing costs

In connection with the $160.3 million in incremental borrowings described in note e. above, the Company incurred costs totaling approximately $759,000 to amend its existing credit facility, which are being amortized over the remaining term of the facility of approximately three years. The pro forma adjustment made to deferred financing costs (which are included in the Intangible assets, net line) and amortization of deferred financing costs (using the straight-line method) are as follows (amounts in thousands):

g.Equity compensation

In connection with the acquisition, the Company granted 60,000 Restricted Stock Units (“RSUs”) to certain members of Cardpoint’s management. The related expenses, which vest ratably over four years, are included as pro forma adjustments to Selling, general and administrative expenses line.

h.Transaction costs

No transaction costs were expensed for the year ended December 31, 2012 related to the Cardpoint acquisition.  For the six months ended June 30, 2013, the Company incurred $929,000 in transaction costs related to the acquisition, which have been eliminated from the pro forma condensed consolidated statement of operations.  Included in the pro forma condensed consolidated balance sheet are, approximately $3.6 million in estimated transaction costs.

i. Stockholders’ equity

The following pro forma adjustments were made to stockholders’ equity as of June 30, 2013:

j.Income tax provision

The following estimated statutory rates for each country were used to calculate the income tax provision adjustment for the effects of pro forma adjustments on the pro forma condensed consolidated statement of operations:

(3) Pro forma Earnings per Share

The Company reports its earnings per share under the two-class method. Under this method, potentially dilutive securities are excluded from the calculation of diluted earnings per share (as well as their related impact on the statements of operations) when their impact on net income available to common stockholders is anti-dilutive. Potentially dilutive securities for the six months ended June 30, 2013 and for the year ended December 31, 2012 included all outstanding stock options and shares of restricted stock, which were included in the calculation of pro forma diluted earnings per share for these periods.

Additionally, the shares of restricted stock issued by the Company have a non-forfeitable right to cash dividends, if and when declared by the Company.  Accordingly, restricted shares are considered to be participating securities and, as such, the Company has allocated the undistributed pro forma earnings for the six months ended June 30, 2013 and for the year ended December 31, 2012 among the Company's outstanding shares of common stock and issued but unvested restricted shares, as follows:

 Pro Forma Earnings per Share (in thousands, excluding share and per share amounts):

The computation of pro forma diluted earnings per share excluded potentially dilutive common shares related to restricted stock (including both Restricted Stock Awards and RSUs) of 466,152 and 630,537 shares for the six months ended June 30, 2013 and for the year ended December 31, 2013, respectively, because the effect of including these shares in the computation would have been anti-dilutive.

(4) Foreign Currency Exchange

The functional currency of the Company is the U.S. dollars (USD). As such, all amounts in British pounds (GBP) have been translated using the appropriate GBP-USD rates in effect during the reported periods.  The following are the exchange rates that were used to prepare these unaudited pro forma condensed consolidated financial statements: