(2) Acquisitions

DirectCash Payments Inc. Acquisition

On January 6, 2017, the Company completed the acquisition of DCPayments, whereby DCPayments became a wholly-owned indirect subsidiary of the Company. In connection with the closing of the acquisition, each DCPayments common share was acquired for Canadian Dollars $19.00 in cash per common share, and the Company also repaid the outstanding third-party indebtedness of DCPayments, the combined aggregate of which represented a total transaction value of approximately $658 million Canadian Dollars (approximately $495 million U.S. dollars). The total amount paid for the acquisition at closing was financed with cash on hand and borrowings under the Company’s revolving credit facility. The purchase price has been preliminarily allocated as disclosed further below.

As a result of the DCPayments acquisition, the Company significantly increased the size of its Canadian, Mexico, and U.K. operations and entered into the Australian and New Zealand markets. With this acquisition, the Company added approximately 25,000 ATMs to its global ATM count.

The DCPayments operations acquired in the U.K. are currently subject to a review by the U.K. Competition and Markets Authority (the “CMA”) and DC Payments U.K. Limited continues to operate as a separate business with the DCPayments pre-acquisition management running the business independently from the Company’s management while the CMA review is completed.

The results of DCPayments operations have been included in the accompanying Consolidated Statements of Operations subsequent to the January 6, 2017 acquisition date. DCPayments contributed $1.3 million and $1.0 million, respectively, to the Company’s income from operations during the three and six months ended June 30, 2017, inclusive of $1.8 million and $3.0 million, respectively, in acquisition-related expenses.

The DCPayments acquisition was accounted for as a business combination using the purchase method of accounting under the provisions of Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), with Cardtronics as the acquirer of DCPayments. In accordance with ASC 805, all assets acquired and liabilities assumed have been recorded at their estimated fair value as of the acquisition date and any excess of the purchase consideration over the fair value of the identifiable assets acquired and liabilities assumed has been recognized as goodwill. This preliminary fair value purchase allocation process resulted in a preliminary goodwill allocation of approximately $297.5 million, of which $103.3 million, $42.6 million, and $151.6 million has been assigned to the Company’s North America, Europe & Africa, and Australia & New Zealand reporting segments, respectively. The recognized goodwill is primarily attributable to expected revenue and cost synergies from the acquisition. None of the goodwill or intangible asset amounts are expected to be deductible for income tax purposes; however, the Company acquired certain tax assets in the form of accumulated net operating loss carryforwards and capital allowances, which the Company currently expects to utilize. The Company made various revisions to its preliminary purchase price allocation during the three months ended June 30, 2017 and several components of the preliminary purchase price allocation are presently under review, including the tangible and intangible asset valuations and the attribution of the purchase price to the Company’s reporting segments. The Company expects to finalize its purchase accounting for this acquisition later in 2017.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:


	(In thousands)
Cash and cash equivalents	$	28,227
Accounts and notes receivable		14,841
Inventory		977
Restricted cash		2,475
Prepaid expenses, deferred costs, and other current assets		3,157
Property and equipment		70,624
Intangible assets		175,675
Goodwill		297,535
Prepaid expenses, deferred costs, and other noncurrent assets		674
Total assets acquired	$	594,185

Current portion of other long-term liabilities	$	9,171
Accounts payable and other current liabilities		49,117
Asset retirement obligations		6,973
Deferred tax liability		23,259
Other long-term liabilities		10,186
Total liabilities assumed	$	98,706

Net assets acquired	$	495,479

The fair values of intangible assets acquired have been estimated utilizing an income approach, with the assistance of an independent appraisal firm. The acquired intangible assets are being amortized on a straight-line basis, over the estimated lives. At the date of the acquisition the estimated fair values consisted of the following:


	Fair Values		Estimated Useful Lives
	(In thousands)
Merchant contracts/relationships	$	164,907		8 years
Trade names: definite-lived		10,768		3 years
Total intangible assets acquired	$	175,675

Pro Forma Results of Operations

The following table presents certain unaudited pro forma combined results of operations of the Company and the acquired DCPayments operations for the three and six months ended June 30, 2016, after giving effect to certain pro forma and conforming accounting adjustments including: (i) amortization of acquired intangible assets, (ii) the impact of certain fair value adjustments such as depreciation on the acquired property and equipment, (iii) an interest expense adjustment for the net impact of the removal of the interest expense on the historical long-term debt of DCPayments that was repaid and the new interest expense on additional borrowings incurred by the Company to fund the acquisition, and (iv) a conforming adjustment to recognize certain DCPayments surcharge revenues on a gross basis (not reduced by merchant commission payments), consistent with the Company policy and practice, and other less significant conforming accounting adjustments.


	Three Months Ended				Six Months Ended
	June 30, 2016				June 30, 2016
	As Reported		Pro Forma		As Reported		Pro Forma
	(In thousands, excluding per share amounts)
Total revenues	$	323,961	$	386,301	$	627,208	$	747,125
Net income attributable to controlling interests and available to common shareholders		20,148		21,871		35,532		38,461

Net income per common share – basic	$	0.45	$	0.48	$	0.79	$	0.85
Net income per common share – diluted	$	0.44	$	0.48	$	0.78	$	0.84

The unaudited pro forma combined results of operations for the three and six months ended June 30, 2016, reflected in the table above, do not include the impact of other acquisitions completed since June 30, 2016, as these transactions did not have a material impact on the overall consolidated financial statements. These unaudited pro forma combined results of operations do not reflect the impact of any potential operating efficiencies, savings from expected synergies, or costs to integrate the operations. The unaudited pro forma combined results of operations are not necessarily indicative of the future results to be expected for the Company’s consolidated results of operations.

Other Acquisitions

On January 31, 2017, the Company completed the acquisition of Spark ATM Systems Pty Ltd. (“Spark”), an independent ATM deployer in South Africa, with a growing network of approximately 2,300 ATMs. The initial purchase consideration of 260.7 million South African Rand (“Rand”) (approximately $19.5 million U.S. dollars, at the January 31, 2017 foreign currency exchange rate), was paid in cash and included approximately 64.0 million Rand to pay off third-party debt of Spark. The total purchase consideration also includes potential additional contingent consideration of up to approximately 805 million Rand (approximately $59.6 million U.S. dollars, at the January 31, 2017 foreign currency exchange rate). The contingent consideration will vary based upon Spark achieving certain agreed upon earnings targets in 2019 and 2020 and would be payable to the previous investors in the Spark business. During the three months ended June 30, 2017, the preliminary estimated acquisition date fair value of the contingent consideration was revised to approximately 544 million Rand (approximately $40.2 million U.S. dollars, at the January 31, 2017 foreign currency exchange rate), as determined with the assistance of an independent appraisal firm using forecasted future financial projections and other Level 3 inputs (for additional information related to the Company’s fair value estimates see Note 12. Fair Value Measurements). During the three months ended June 30, 2017, the Company recorded an expense of $1.6 million in the Other expense line item in the accompanying Consolidated Statements of Operations related to the contingent consideration arrangement. In future periods, the Company may record additional expense or may reduce its expense to account for revisions to the amount expected to be paid related to the contingent payment element, which will vary based on actual and expected performance. In conjunction with the transaction, the Company preliminarily recognized property and equipment of approximately $5.3 million, intangible assets of $2.8 million, Asset Retirement Obligations (“ARO”) of approximately $0.4 million, other net liabilities of approximately $1.5 million, and goodwill of approximately $53.5 million. The purchase accounting for this transaction remains preliminary, pending finalization of the related asset appraisals.

On April 13, 2016, the Company completed the acquisition of a 2,600 location ATM portfolio in the U.S. from a major financial institution. This acquisition was affected through multiple closings taking place primarily in April 2016. The total purchase consideration of approximately $13.8 million was paid in installments corresponding to each close. In conjunction with the transaction, the Company recognized property and equipment of $8.3 million, contract intangibles and prepaid merchant commissions of $7.1 million, and ARO of $1.6 million. The Company completed the purchase accounting during the fourth quarter of 2016.