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Income Taxes
12 Months Ended
Dec. 31, 2016
Income Taxes  
Income Taxes

(18) Income Taxes

 

As a result of the Redomicile Transaction, completed on July 1, 2016, the location of incorporation of the parent company of the Cardtronics group was changed from Delaware to the U.K. As a Delaware company, the statutory tax rate was 35.0%, and after the redomicile to the U.K., the Cardtronics parent company statutory tax rate is now 20.0%.  For additional information related to the Redomicile Transaction, see Note 1. Basis of Presentation and Summary of Significant Accounting Policies - (a) Description of Business.

 

The Company’s income before income taxes consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31, 

 

 

2016

 

2015

 

2014

 

 

(In thousands)

U.S.

 

$

39,347

 

$

80,318

 

$

64,047

Non-U.S.

 

 

75,185

 

 

25,005

 

 

(679)

Total pre-tax book income

 

$

114,532

 

$

105,323

 

$

63,368

 

The Company’s income tax expense based on income before income taxes consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31, 

 

 

2016

 

2015

 

2014

 

 

(In thousands)

Current

 

 

 

 

 

 

 

 

 

U.S. federal

 

$

8,005

 

$

19,590

 

$

19,033

U.S. state and local

 

 

4,386

 

 

4,495

 

 

3,554

Non-U.S.

 

 

4,345

 

 

4,264

 

 

2,549

Total current

 

$

16,736

 

$

28,349

 

$

25,136

 

 

 

 

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

 

 

U.S. federal

 

$

9,857

 

$

6,890

 

$

1,639

U.S. state and local

 

 

1,966

 

 

1,226

 

 

795

Non-U.S.

 

 

(1,937)

 

 

2,877

 

 

604

Total deferred

 

$

9,886

 

$

10,993

 

$

3,038

Total income tax expense

 

$

26,622

 

$

39,342

 

$

28,174

 

Income tax expense differs from amounts computed by applying the statutory tax rate to income before income taxes as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

December 31, 

 

 

2016

 

2015

 

2014

 

 

(In thousands)

Income tax expense, at the statutory tax rate of 20.0% for the year ended December 31, 2016, and 35.0% for the years ended December 31, 2015 and 2014

 

$

22,906

 

$

36,863

 

$

22,179

Provision to return and deferred tax adjustments

 

 

1,858

 

 

145

 

 

1,705

State tax, net of federal benefit

 

 

3,584

 

 

3,504

 

 

2,717

Permanent adjustments

 

 

1,514

 

 

1,810

 

 

173

Tax rates in excess of/(less than) statutory tax rates

 

 

8,161

 

 

(5,035)

 

 

(985)

Impact of Finance Structure

 

 

(8,165)

 

 

 —

 

 

 —

Gain on divestiture

 

 

 —

 

 

3,465

 

 

 —

Nondeductible transaction costs

 

 

3,844

 

 

 —

 

 

 —

Other

 

 

316

 

 

(773)

 

 

338

Subtotal

 

 

34,018

 

 

39,979

 

 

26,127

Change in valuation allowance

 

 

(7,396)

 

 

(637)

 

 

2,047

Total income tax expense

 

$

26,622

 

$

39,342

 

$

28,174

 

Income tax expense for the year ended December 31, 2016 relates primarily to income from the Company’s U.S. and U.K. operations where the significant majority of earnings were generated. The decrease in income tax expense, compared to the prior year, is attributable to the release of a $8.2 million valuation allowance on a deferred tax asset in the U.K., certain benefits achieved from the Redomicile Transaction and the post-redomicile structuring, and the mix of earnings across jurisdictions.

 

As discussed in Note 1. Basis of Presentation and Summary of Significant Accounting Policies - (b) Basis of Presentation and Consolidation, the Company adopted the new accounting guidance applicable to the classification of deferred taxes to the interim periods of 2016, eliminating the requirement for organizations to present deferred tax assets and liabilities current and noncurrent in a classified balance sheet and requires organizations to classify all deferred tax assets and liabilities as noncurrent. The prospective adoption of this standard resulted in a decrease of $16.3 million in the Current deferred tax assets line item in the accompanying Consolidated Balance Sheets, an increase of $1.4 million in the Noncurrent deferred tax assets line item in the accompanying Consolidated Balance Sheets, and a decrease of $14.9 million in the Noncurrent deferred tax liabilities line item in the accompanying Consolidated Balance Sheets.

 

The Company’s net current and noncurrent deferred tax assets and liabilities (by segment) consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

Europe

 

Corporate & Other

 

 

Year Ended December 31,

 

Year Ended December 31,

 

Year Ended December 31,

 

 

2016

 

2015

 

2016

 

2015

 

2016

 

2015

 

 

(In thousands)

Current deferred tax asset

 

$

 —

 

$

16,048

 

$

 —

 

$

228

 

$

 —

 

$

168

Valuation allowance

 

 

 —

 

 

(91)

 

 

 —

 

 

(9)

 

 

 —

 

 

 —

Net current deferred tax asset

 

 

 —

 

 

15,957

 

 

 —

 

 

219

 

 

 —

 

 

168

Noncurrent deferred tax asset

 

 

33,684

 

 

33,457

 

 

18,644

 

 

29,382

 

 

2,357

 

 

 —

Valuation allowance

 

 

(2,243)

 

 

(2,820)

 

 

(850)

 

 

(9,401)

 

 

 —

 

 

 —

Noncurrent deferred tax liability

 

 

(55,384)

 

 

(47,879)

 

 

(7,019)

 

 

(10,565)

 

 

(3,810)

 

 

(2,097)

Net noncurrent deferred tax (liability) asset

 

 

(23,943)

 

 

(17,242)

 

 

10,775

 

 

9,416

 

 

(1,453)

 

 

(2,097)

Net deferred tax (liability) asset

 

$

(23,943)

 

$

(1,285)

 

$

10,775

 

$

9,635

 

$

(1,453)

 

$

(1,929)

 

The Company’s tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

December 31, 2015

 

 

(In thousands)

Current deferred tax assets

 

 

 

 

 

 

Reserve for receivables

 

$

 —

 

$

411

Accrued liabilities and inventory reserves

 

 

 —

 

 

6,019

Unrealized losses on interest rate swap contracts

 

 

 —

 

 

8,971

Other

 

 

 —

 

 

1,043

Subtotal

 

 

 —

 

 

16,444

Valuation allowance

 

 

 —

 

 

(100)

Current deferred tax assets

 

$

 —

 

$

16,344

 

 

 

 

 

 

 

Noncurrent deferred tax assets

 

 

 

 

 

 

Reserve for receivables

 

$

667

 

$

 —

Accrued liabilities and inventory reserves

 

 

7,472

 

 

 —

Net operating loss carryforward

 

 

8,779

 

 

17,282

Unrealized losses on interest rate swap contracts

 

 

5,452

 

 

8,411

Share-based compensation expense

 

 

11,455

 

 

10,755

Asset retirement obligations

 

 

3,300

 

 

3,042

Tangible and intangible assets

 

 

13,343

 

 

17,322

Deferred revenue

 

 

878

 

 

434

Other

 

 

3,340

 

 

5,593

Subtotal

 

 

54,686

 

 

62,839

Valuation allowance

 

 

(3,094)

 

 

(12,221)

Noncurrent deferred tax assets

 

$

51,592

 

$

50,618

 

 

 

 

 

 

 

Noncurrent deferred tax liabilities

 

 

 

 

 

 

Tangible and intangible assets

 

$

(66,116)

 

$

(60,418)

Asset retirement obligations

 

 

(97)

 

 

(123)

Noncurrent deferred tax liabilities

 

$

(66,213)

 

$

(60,541)

 

 

 

 

 

 

 

Net deferred tax (liability) asset

 

$

(14,621)

 

$

6,421

 

The Company assesses the need for any deferred tax asset valuation allowances at the end of each reporting period. The determination of whether a valuation allowance for deferred tax assets is needed is subject to considerable judgment and requires an evaluation of all available positive and negative evidence. Based on the assessment at December 31, 2016, and the weight of all evidence, the Company concluded to release $8.2 million of the deferred tax asset valuation allowance related to its U.K. fixed assets. Over the past few years, the Company’s U.K. business has experienced significant growth and profitability through organic revenue growth and acquisitions in 2013, 2014, and the recently completed DCPayments acquisition (in early 2017). This growth has increased taxable income in the U.K., and therefore, the Company concluded that it is more likely than not that the U.K. deferred tax assets will be realized in the future. The Company also concluded that maintaining the valuation allowance on deferred tax assets in Mexico and other new markets is appropriate, as the Company currently believes that it is more likely than not that the related deferred tax assets will not be realized.

 

The deferred tax expenses and benefits associated with the Company’s net unrealized gains and losses on derivative instruments and foreign currency translation adjustments have been reflected within the Accumulated other comprehensive loss, net balance in the accompanying Consolidated Balance Sheets.

 

As of December 31, 2016, the Company had approximately $7.2 million in U.S. federal net operating loss carryforwards that will begin expiring in 2021, approximately $14.7 million in net operating loss carryforwards in the U.K. that are not subject to expiration, and approximately $9.3 million in net operating loss carryforwards in Mexico that will begin expiring in 2017 based on a 10 year loss carryforward limitation. The deferred tax benefits associated with such carryforwards in Mexico, to the extent they are not offset by deferred tax liabilities, have been fully reserved for through a valuation allowance.

 

The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. With few exceptions, the Company is not subject to income tax examination by tax authorities for years before 2012.

 

The Company currently believes that the unremitted earnings of its foreign subsidiaries of approximately $47.6 million will be indefinitely reinvested in the corresponding country of origin, and therefore, has not recognized deferred tax liabilities of $8.4 million as of December 31, 2016.