Cardtronics 8-K/A Combined Financial Statements and Report of Independent Certified Public Accountants

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

PF-1

 

CARDTRONICS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

As of June 30, 2011

(In thousands)

	Historical (Unaudited)				Pro Forma			Pro Forma
	Cardtronics, Inc.		EDC		Adjustments		Note 2	Combined
Assets
Current assets:
Cash and cash equivalents	$	3,998	$	4,115	$	(655)	f	$	7,458
Accounts and notes receivable, net		26,787		1,668		(38)	h		28,417
Inventory		1,770		156		(97)	a		1,829
Restricted cash		3,396		—		—			3,396
Current portion of deferred tax asset, net		13,780		—		—			13,780
Prepaid expenses, deferred costs, and other current assets		13,821		3,150		(802)	a		16,169
Total current assets		63,552		9,089		(1,592)			71,049
Property and equipment, net		162,209		8,895		1,066	a, b		172,170
Intangible assets, net		69,596		2,344		44,177	c, f		116,117
Goodwill		164,974		40,199		63,419	l		268,592
Deferred tax asset, net		738		—		—			738
Prepaid expenses, deferred costs, and other assets		20,338		9		—			20,347
Total assets	$	481,407	$	60,536	$	107,070		$	649,013
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt and notes payable		$ 3,326		$ 3,350		$ (3,350)	e		$ 3,326
Current portion of other long-term liabilities		24,755		—		—			24,755
Accounts payable and other accrued and current liabilities		67,592		10,621		(1,137)	h, i, j		77,076
Total current liabilities		95,673		13,971		(4,487)			105,157
Long-term liabilities:
Long-term debt		244,399		34,624		110,376	e		389,399
Deferred tax liability, net		16,276		10,027		(4,272)	a		22,031
Asset retirement obligations		29,052		—		1,902	d		30,954
Other long-term liabilities		32,899		—		4,500	g		37,399
Total liabilities		418,299		58,622		108,019			584,940
Total stockholders' equity		63,108		1,914		(949)	k		64,073
Total liabilities and stockholders' equity	$	481,407	$	60,536	$	107,070		$	649,013

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

PF-2

 

CARDTRONICS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2011

(In thousands)

	Historical (Unaudited)				Pro Forma			Pro Forma
	Cardtronics, Inc.		EDC		Adjustments		Note 2	Combined
ATM operating revenues	$	274,528	$	30,063	$	(227)	h	$	304,364
ATM product sales and other revenues		10,807		—		—			10,807
Total revenues		285,335		30,063		(227)			315,171
Cost of ATM operating revenues		181,903		21,020		(1,047)	g, h		201,876
Cost of ATM product sales and other revenues (exclusive of depreciation, accretion, and amortization shown separately below)		9,561		—		—			9,561
Total cost of revenues		191,464		21,020		(1,047)			211,437
Gross profit		93,871		9,043		820			103,734
Operating expenses:
Selling, general and administrative expenses		26,272		3,907		(597)	i, j		29,582
Depreciation and accretion expense		22,807		1,599		(755)	b, d		23,651
Amortization expense		7,294		1,812		1,863	c		10,969
Loss on disposal of assets		163		325		—			488
Total operating expenses		56,536		7,643		511			64,690
Income from operations		37,335		1,400		309			39,044
Interest expense, net		9,567		2,319		(519)	e		11,367
Amortization of deferred financing costs and bond discounts		424		166		(116)	f		474
Other (income) expense		(60)		—		—			(60)
Total other expense (income)		9,931		2,485		(635)			11,781
Income (loss) before income taxes		27,404		(1,085)		944			27,263
Income tax provision (benefit)		12,104		286		363	m		12,753
Net income (loss)		15,300		(1,371)		581			14,510
Net income attributable to noncontrolling interests		105		—		—			105
Net income (loss) applicable to controlling interests and available to common stockholders	$	15,195	$	(1,371)	$	581		$	14,405
Basic EPS	$	0.35						$	0.33
Diluted EPS	$	0.35						$	0.33
Weighted average shares outstanding - basic		41,712,659							41,722,659
Weighted average shares outstanding - diluted		42,476,101							42,486,101

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

PF-3

 

CARDTRONICS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2010

(In thousands)

	Historical (Audited)				Pro Forma			Pro Forma
	Cardtronics, Inc.		EDC		Adjustments		Note 2	Combined
ATM operating revenues	$	522,900	$	51,668	$	(254)	h	$	574,314
ATM product sales and other revenues		9,178		—		—			9,178
Total revenues		532,078		51,668		(254)			583,492
Cost of ATM operating revenues		351,490		34,861		(1,894)	g, h		384,457
Cost of ATM product sales and other revenues (exclusive of depreciation, accretion, and amortization shown separately below)		8,902		—		—			8,902
Total cost of revenues		360,392		34,861		(1,894)			393,359
Gross profit		171,686		16,807		1,640			190,133
Operating expenses:
Selling, general and administrative expenses		44,581		5,264		(1,053)	i		48,792
Depreciation and accretion expense		42,724		2,703		(1,035)	b, d		44,392
Amortization expense		15,471		7,229		121	c		22,821
Loss on disposal of assets		2,647		841		—			3,488
Total operating expenses		105,423		16,037		(1,967)			119,493
Income from operations		66,263		770		3,607			70,640
Interest expense, net		26,629		4,881		(1,281)	e		30,229
Amortization of deferred financing costs and bond discounts		2,029		331		(241)	f		2,119
Write-off of deferred financing costs and bond discounts		7,296		—		—			7,296
Redemption costs for early extinguishment of debt		7,193		—		—			7,193
Other (income) expense		(878)		—		—			(878)
Total other expense (income)		42,269		5,212		(1,522)			45,959
Income (loss) before income taxes		23,994		(4,442)		5,129			24,681
Income tax provision (benefit)		(17,139)		(5,091)		1,975	m		(20,255)
Net income (loss)		41,133		649		3,154			44,936
Net income attributable to noncontrolling interests		174		—		—			174
Net income (loss) applicable to controlling interests and available to common stockholders	$	40,959	$	649	$	3,154		$	44,762
Basic EPS	$	0.98						$	1.07
Diluted EPS	$	0.96						$	1.05
Weighted average shares outstanding - basic		40,347,194							40,357,194
Weighted average shares outstanding - diluted		41,059,381							41,069,381

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

PF-4

 

CARDTRONICS, INC.

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:

		(In thousands)
Cash and cash equivalents	$	4,115
Accounts and notes receivable		1,630
Inventory		59
Prepaid expenses, deferred costs, and other current assets		2,348
Property and equipment, net		9,961
Intangible assets		46,000
Goodwill 1		103,618
Other assets		9
Total assets acquired	$	167,740
Accounts payable and other accrued and current liabilities	$	10,583
Asset retirement obligations		1,902
Deferred tax liability, net		5,755
Other noncurrent liabilities		4,500
Total liabilities acquired	$	22,740
Net assets acquired	$	145,000

        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:

	Historical Amount		Fair Value		Fair Value Adjustment
	(In thousands)
Inventory	$	156	$	59	$	(97)
Prepaid expenses, deferred costs, and other current assets		3,150		2,348		(802)
Property and equipment, net		8,895		9,9612		1,066
Deferred tax liability, net		10,027		5,755		(4,272)

  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):

				Pro Forma Depreciation
	Fair Values		Useful Lives	For the Six Months Ended June 30, 2011		For the Year Ended December 31, 2010
ATM equipment	$	8,532	0 to 8 years	$	607	$	1,213
Other equipment		1,429	2 to 5 years		195		374
Total	$	9,961		$	802	$	1,587
Elimination of historical EDC balance		—			(1,599)		(2,703)
Pro forma adjustment	$	9,961		$	(797)	$	(1,116)

PF-5

 

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):

				Pro Forma Amortization
	Fair Values		Useful Lives	For the Six Months Ended June 30, 2011		For the Year Ended December 31, 2010
Customer contracts	$	33,700	7 to 9.4 years	$	2,042	$	4,085
Bank branding contracts		11,200	4.1 years		1,358		2,715
Non-compete agreements		1,100	2 years		275		550
Total	$	46,000		$	3,675	$	7,350
Elimination of historical EDC balance		(2,344)			(1,812)		(7,229)
Pro forma adjustment	$	43,656		$	1,863	$	121

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):

			Pro Forma Accretion
	Fair Values	Accretion Period	For the Six Months Ended June 30, 2011	For the Year Ended December 31, 2010
AROs for acquired ATMs	$ 1,902	0 to 5 years	$ 42	$ 81

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):

					Pro Forma Interest Expense
	Principal Balance			Interest Rate	For the Six Months Ended June 30, 2011			For the Year Ended December 31, 2010
Revolving credit facility	$	142,000		2.44%	$	1,732		$	3,465
Swing-line credit facility		3,000		4.50%		68			135
Total	$	145,000			$	1,800		$	3,600
Elimination of historical EDC balance (long-term portion) 2		(34,624	)			(2,319	)		(4,881	)
Pro forma adjustment	$	110,376			$	(519	)	$	(1,281	)

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):

PF-6

 

					Pro Forma Amortization
	Intangible Assets			Amortization Period	For the Six Months Ended June 30, 2011			For the Year Ended December 31, 2010
Deferred financing costs related to the new debt	$	655		5 years	$	66		$	132
Partial write-off of old deferred financing costs		(134	)			(16	)		(42	)
Total	$	521			$	50		$	90
Elimination of historical EDC balance		—				(166	)		(331	)
Pro forma adjustment	$	521			$	(116	)	$	(241	)

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):

	For the Six Months Ended June 30, 2011			For the Year Ended December 31, 2010
EDC Profit interests	$	—		$	(202	)
EDC Stock option expense		(318	)		(903	)
Total equity compensation liability eliminated at June 30, 2011	$	(318	)	$	(1,105	)
Stock-based compensation related to new Restricted Stock Awards		26			52
Pro forma adjustments to Selling, general and administrative expenses	$	(292	)	$	(1,053	)

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.

PF-7

 

k.Stockholders’ equity

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

		(In thousands)
Elimination of historical EDC equity	$	(1,914	)
Partial write-off of old deferred financing costs (see f. above)		(134	)
Equity compensation liability eliminated (see i. above)		1,423
Additional transaction costs accrued (see j. above)		(324	)
Total adjustment as of June 30, 2011	$	(949	)

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):

	Six Months Ended June 30, 2011							Year Ended December 31, 2011
				Weighted							Weighted
				Average		Earnings					Average		Earnings
				Shares		Per					Shares		Per
	Income			Outstanding		Share		Income			Outstanding		Share
Basic:
Net income attributable to controlling interests and available to common stockholders	$	14,405						$	44,762
Less: undistributed earnings allocated to unvested restricted shares		(456	)						(1,717	)
Net income available to common stockholders	$	13,949			41,722,659	$	0.33	$	43,045			40,357,194	$	1.07
Diluted:
Effect of dilutive securities:
Add: Undistributed earnings allocated to restricted shares	$	456						$	1,717
Stock options added to the denominator under the treasury stock method					763,442							712,187
Less: Undistributed earnings reallocated to restricted shares		(448	)						(1,689	)
Net income available to common stockholders and assumed conversions	$	13,957			42,486,101	$	0.33	$	43,073			41,069,381	$	1.05

PF-8

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.

PF-9