On June 21, 2011, Cardtronics, Inc. (the “Company”) announced that it had entered into a Securities Purchase Agreement (the “Agreement”) to acquire all of the outstanding securities of Efmark Deployment I, Inc. (“Efmark”) and EDC ATM Subsidiary, LLC (collectively with Efmark, “EDC”) from EDC Holding Company, LLC. The significant terms of the Agreement were previously reported by the Company on June 21, 2011 in the Current Report on Form 8-K filed on that date.

On July 25, 2011, the Company completed the transaction in accordance with the terms and conditions of the Agreement. The cash purchase price of $145.0 million was funded through borrowings under the Company’s amended credit facility, and has been preliminarily allocated as disclosed below in Note 1, Preliminary Purchase Price Allocation. A portion of the purchase price was used to repay all outstanding indebtedness of EDC at closing. The purchase price may be adjusted in the future for working capital adjustments and as the Company completes its valuation analysis with respect to the assets acquired and liabilities assumed.

The unaudited pro forma condensed consolidated financial statements presented gives effect to the acquisition of EDC as if it had occurred on June 30, 2011 for the presentation of the unaudited pro forma condensed consolidated balance sheet as of June 30, 2011, and on January 1, 2010 for the presentation of the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2010 and for the six months ended June 30, 2011. The pro forma condensed consolidated financial statements were based on the historical financial statements of the Company and EDC. Certain amounts from EDC’s historical combined financial statements have been reclassified to conform to the Company’s presentation.

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, 2010 and Quarterly Report on Form 10-Q for the quarter and six months ended June 30, 2011, which includes 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

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

(1) Preliminary Acquisition Accounting

The unaudited pro forma condensed consolidated financial statements reflect a total consideration transferred of $145.0 million, which has been preliminarily allocated as follows as of June 30, 2011:

        ¹ Goodwill represents the excess of the purchase price over the fair value of the net assets acquired.

(2) Pro Forma Adjustments

a.       Fair value adjustments

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

  ² The fair value of property and equipment includes asset retirement obligation assets (see b. below for components of this value).

b.       Property and equipment, net

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

c.        Intangible assets

The historical intangible assets balance of EDC was eliminated and the estimated fair value on newly identified finite lived intangible assets and the related amortization were recorded as follows (amounts in thousands):

d.       Asset retirement obligations

The following asset retirement obligations (“AROs”) were recorded for the costs to deinstall its ATMs and costs to restore the ATM sites to their original condition, consistent with the Company’s accounting policy.  The following liabilities were recorded as of the acquisition date (amounts in thousands):

Of the total ARO recorded above, $487,000 relates to assets that will be replaced within the next 12 months.

e.        Long-term debt

The historical long-term debt balances of EDC were eliminated as of June 30, 2011, as these amounts were paid off on the acquisition date.

To fund the acquisition, the Company borrowed $145.0 million from its revolving credit facility and its swing-line credit facility.  The pro forma adjustments made to long-term debt and interest expense were as follows (amounts in thousands):

² The entire current portion of long-term debt in the amount of $3,350,000 was also eliminated at June 30, 2011.

f.        Deferred financing costs

The deferred financing costs related to historical EDC debt were eliminated as of June 30, 2011, as the related long-term debt was paid off on the acquisition date.

In connection with the $145.0 million in incremental borrowings described above in e., the Company incurred costs totaling approximately $655,000 to amend its existing credit facility, which are being amortized over the remaining term of the facility of approximately 5 years, and a portion of the previously-deferred financing costs were written off for approximately $134,000. The pro forma adjustment made to deferred financing costs (which are included in the Intangible assets, net line) and amortization of deferred financing costs and bond discounts were as follows (amounts in thousands):

g.        Unfavorable contract liability

An estimated unfavorable contract liability of $4.5 million was recorded as of the acquisition date, representing the difference between the terms of the assumed vendor contracts relative to market terms.  This liability is amortized between 2.3 and 3.7 years, based on the remaining terms of the related contracts.  The liability is amortized against the various costs of ATM operating revenues, which were estimated to be $820,000 and $1,640,000 for the six months ended June 30, 2011 and for the year ended December 31, 2010, respectively.

h.       Allpoint fees and expenses

The Company owns and operates the Allpoint network, which is the largest surcharge-free ATM network within the United States (based on the number of participating ATMs).  Certain of the ATMs owned by EDC carried the Allpoint network logo, therefore providing surcharge-free ATM access to customers of participating financial institutions.  In exchange for allowing these surcharge-free transactions, the Company compensated EDC based on the number of these transactions. These fees were eliminated for the six months ended June 30, 2011 and for the year ended December 31, 2010 in the amounts of $227,000 and $254,000, respectively, in order to present consolidated financial statements after elimination of all intercompany activity.  Additionally, the Company’s accounts payable as of June 30, 2011 and the related receivable of EDC in the amount of $38,000 were eliminated in the unaudited pro forma condensed consolidated balance sheet.

i.         Equity compensations

EDC’s liability related to its stock option plan and profit interests were eliminated as of June 30, 2011, as these plans were cancelled on the acquisition date and therefore, the related expenses were eliminated from the unaudited pro forma condensed consolidated statements of operations. 

In connection with the acquisition, the Company granted 10,000 Restricted Stock Awards. The related expenses (which are included in the Selling, general and administrative expenses line) are included as pro forma adjustments to Selling, general and administrative expenses line.

The following are the pro forma adjustments made to Selling, general and administrative expenses (amounts in thousands):

j.         Transaction costs

No transaction costs were expensed for the year ended December 31, 2010.  For the six months ended June 30, 2011, the Company incurred $305,000 in transaction costs, which has been eliminated from the pro forma condensed consolidated statement of operations.  For the pro forma condensed consolidated balance sheet, a total of $629,000 in transaction costs have been reflected, which is comprised of the $305,000 already expensed and additional estimated transaction costs of $324,000.

k.       Stockholders’ equity

The following pro forma adjustments were made to stockholders’ equity as of June 30, 2011:

l.         Goodwill 

The historical goodwill balance of EDC was eliminated as of June 30, 2011 and the goodwill resulting from the transaction, as calculated in Note 1, Preliminary Purchase Price Allocation above, was recorded.

m.     Income tax provision

A statutory rate of 38.5% was used to calculate the income tax provision for the effects of pro forma adjustments on the pro forma condensed consolidated statement of operations.

(3) 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, 2011 and for the year ended December 31, 2010 included all outstanding stock options and shares of restricted stock, which were included in the calculation of 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 earnings for the six months ended June 30, 2011 and for the year ended December 31, 2010 among the Company's outstanding shares of common stock and issued but unvested restricted shares, as follows:

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

The computation of diluted earnings per share excluded potentially dilutive common shares related to Restricted Stock Awards of 526,487 and 476,162 shares for the six months ended June 30, 2011 and for the year ended December 31, 2010, respectively, because the effect of including these shares in the computation would have been anti-dilutive.