(1) Basis of Presentation and Summary of Significant Accounting Policies

(a) Description of Business

Cardtronics plc, together with its wholly and majority-owned subsidiaries (collectively, the “Company”), provides convenient automated financial related services to consumers through its network of automated teller machines and multi-function financial services kiosks (collectively referred to as “ATMs”). As of December 31, 2017, Cardtronics was the world’s largest ATM owner/operator, providing services to over 230,000 ATMs.

During 2017, 64.4% of the Company’s revenues were derived from operations in North America (including its ATM operations in the U.S., Canada, and Mexico), 26.8% of the Company’s revenues were derived from operations in Europe and Africa (including its ATM operations in the U.K., Ireland, Germany, Spain, South Africa and the recently exited operations in Poland which accounted for less than 1% of total revenues), and 8.8% of the Company’s revenues were derived from the Company’s operations in Australia and New Zealand. As of December 31, 2017, the Company provided processing only services or various forms of managed services solutions to approximately 134,000 ATMs. Under a managed services arrangement, retailers, financial institutions, and ATM distributors rely on Cardtronics to handle some or all of the operational aspects associated with operating and maintaining ATMs, typically in exchange for a monthly service fee, fee per transaction, or fee per service provided.

Through its network, the Company delivers financial related services to cardholders and provides ATM management and ATM equipment-related services (typically under multi-year contracts) to large retail merchants, smaller retailers, and operators of facilities such as shopping malls, airports, and train stations. In doing so, the Company provides its retail partners with a compelling automated solution that helps attract and retain customers, and in turn, increases the likelihood that the ATMs placed at their facilities will be utilized. The Company also owns and operates electronic funds transfer (“EFT”) transaction processing platforms that provide transaction processing services to its network of ATMs, as well as to other ATMs under managed services arrangements. Additionally, in Canada, through the acquisition of DirectCash Payments Inc. (“DCPayments”), the Company provides processing services for issuers of debit cards.

In addition to its retail merchant relationships, the Company also partners with leading financial institutions to brand selected ATMs within its network, including BBVA Compass Bancshares, Inc. (“BBVA”), Citibank, N.A. (“Citibank”), Citizens Financial Group, Inc. (“Citizens”), Cullen/Frost Bankers, Inc. (“Cullen/Frost”), Discover Bank (“Discover”), PNC Bank, N.A. (“PNC Bank”), Santander Bank, N.A. (“Santander”), and TD Bank, N.A. (“TD Bank”) in the U.S.; the Bank of Nova Scotia (“Scotiabank”), TD Bank, Canadian Imperial Bank Commerce (“CIBC”), and DirectCash Bank in Canada; and the Bank of Queensland Limited (“BOQ”) and HSBC Holdings plc (“HSBC”) in Australia. In Mexico, the Company partners with Scotiabank to place their brands on its ATMs in exchange for certain services provided by them. As of December 31, 2017, approximately 20,000 of the Company’s ATMs were under contract with approximately 500 financial institutions to place their logos on the ATMs and to provide convenient surcharge-free access for their banking customers.

The Company owns and operates the Allpoint network (“Allpoint”), the largest surcharge-free ATM network (based on the number of participating ATMs). Allpoint, which has approximately 55,000 participating ATMs, provides surcharge-free ATM access to over 1,000 participating banks, credit unions, and stored-value debit card issuers. For participants, Allpoint provides scale, density, and convenience of surcharge-free ATMs that surpasses the largest banks in the U.S. Allpoint earns either a fixed monthly fee per cardholder or a fixed fee per transaction that is paid by the participants. The Allpoint network includes a majority of the Company’s ATMs in the U.S. and certain ATMs in the U.K., Canada, Mexico, Puerto Rico, and Australia. Allpoint also works with financial institutions that manage stored-value debit card programs on behalf of corporate entities and governmental agencies, including general purpose, payroll, and electronic benefits transfer (“EBT”) cards. Under these programs, the issuing financial institutions pay Allpoint a fee per issued stored-value debit card or per transaction in return for allowing the users of those cards surcharge-free access to Allpoint’s participating ATM network.

The Company’s revenues are generally recurring in nature, and historically have been derived largely from convenience transaction fees, which are paid by cardholders, as well as other transaction-based fees, including interchange fees, which are paid by the cardholder’s financial institution for the use of the ATMs serving their customers and connectivity to the applicable EFT network that transmits data between the ATM and the cardholder’s financial institution. Other revenue sources include: (i) fees for branding ATMs with the logos of financial institutions and providing financial institution cardholders with surcharge free access, (ii) revenues earned by providing managed services (including transaction processing services) solutions to retailers and financial institutions, (iii) fees from financial institutions that participate in the Allpoint surcharge-free network, (iv) fees earned from foreign currency exchange transactions at the ATM, known as dynamic currency conversion, and (v) revenues from the sale of ATMs and ATM-related equipment and other ancillary services.

(b) Basis of Presentation and Consolidation

The consolidated financial statements include the accounts of the Company. All material intercompany accounts and transactions have been eliminated in consolidation. The Company owns a majority (95.7%) interest in, and realizes a majority of the earnings and/or losses of Cardtronics Mexico, and as a result this entity is reflected as a consolidated subsidiary in the financial statements, with the remaining ownership interests not held by the Company being reflected as noncontrolling interests.

In management’s opinion, all normal recurring adjustments necessary for a fair presentation of the Company’s current and prior period financial results have been made. During the year ended December 31, 2017, the Company adopted the provisions of the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-09, Improvements to Employee Stock-Based Payment Accounting (“ASU 2016-09”), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company utilized the prospective transition method in adopting this new standard and beginning January 1, 2017, the Company recognized all excess tax charges or benefits as income tax expense or benefit in the accompanying Consolidated Statements of Operations and in the accompanying Consolidated Statements of Cash Flows as operating activities. The Company also adopted ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”), for additional information, see (j) Inventory, net below.

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of this Annual Report on Form 10-K (this “2017 Form 10-K”) and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates include the carrying amount of intangibles, goodwill, asset retirement obligations (“ARO”), contingencies, and valuation allowances for receivables, inventories, and deferred income tax assets. Additionally, the Company is required to make estimates and assumptions related to the valuation of its derivative instruments and share-based compensation. Actual results could differ from those estimates, and these differences could be material to the consolidated financial statements.

(d) Cost of ATM Operating Revenues Presentation

The Company presents the Cost of ATM operating revenues in the accompanying Consolidated Statements of Operations exclusive of depreciation, accretion, and amortization of intangible assets related to ATMs and ATM-related assets.

The following table reflects the amounts excluded from the Cost of ATM operating revenues line item in the accompanying Consolidated Statements of Operations for the periods presented:


	Year Ended
	December 31,
	2017		2016		2015

Depreciation and accretion expenses related to ATMs and ATM-related assets	$	90,138	$	70,702	$	64,695
Amortization of intangible assets		57,866		36,822		38,799
Total depreciation, accretion, and amortization of intangible assets excluded from Cost of ATM operating revenues	$	148,004	$	107,524	$	103,494

The Company previously reported a Gross profit subtotal line item in the accompanying Consolidated Statements of Operations, but pursuant to interpretations of SEC guidance regarding the calculation and display of this and similarly titled measures, the Company has removed this subtotal line item from its accompanying Consolidated Statements of Operations.

(e) Redomicile to the U.K.

On July 1, 2016, the Cardtronics group of companies changed the location of incorporation of the parent company from Delaware to the U.K. Cardtronics plc, a public limited company organized under English law (“Cardtronics plc”), became the new publicly traded corporate parent of the Cardtronics group of companies following the completion of the merger between Cardtronics, Inc., a Delaware corporation (“Cardtronics Delaware”), and one of its subsidiaries (the “Merger”). The Merger was completed pursuant to the Agreement and Plan of Merger, dated April 27, 2016, the adoption of which was approved by Cardtronics Delaware’s Shareholders on June 28, 2016 (collectively, the “Redomicile Transaction”). Pursuant to the Redomicile Transaction, each issued and outstanding common share of Cardtronics Delaware held immediately prior to the Merger was effectively converted into one Class A Ordinary Share, nominal value $0.01 per share, of Cardtronics plc (collectively “common shares”). Upon completion, the common shares were listed and began trading on The NASDAQ Stock Market LLC under the symbol “CATM,” the same symbol under which common shares of Cardtronics Delaware were formerly listed and traded.

Any references to “the Company” (as defined above) or any similar references relating to periods before the Redomicile Transaction shall be construed as references to Cardtronics Delaware being the previous parent company of the Cardtronics group of companies, and/or its subsidiaries depending on the context. The Redomicile Transaction was accounted for as an internal reorganization of entities under common control and, therefore, the Cardtronics Delaware assets and liabilities have been accounted for at their historical cost basis and not revalued in the transaction.

(f) Restructuring Expenses

During 2017, the Company initiated a global corporate reorganization and cost reduction initiative (the “Restructuring Plan”), intended to improve its cost structure and operating efficiency. The Restructuring Plan included workforce reductions, facilities closures, and other cost reduction measures.

During the three months ended March 31, 2017, the Company incurred $8.2 million of pre-tax expenses related to the Restructuring Plan. These expenses included employee severance costs of $8.0 million and an immaterial amount of lease termination costs. During the three months ended December 31, 2017, the Company recognized an additional $2.2 million of pre-tax expenses primarily related to the wind down of its operations in Poland. These costs are reflected in the Restructuring expenses line item in the accompanying Consolidated Statements of Operations and include contract termination costs related to merchant, bank sponsorship, lease, and other agreements as well as employee severance costs.

The following table reflects the amounts by segment (for additional information related to the Company’s segments, see Note 20. Segment Information) recorded in the Restructuring expenses line item in the accompanying Consolidated Statements of Operations for December 31, 2017:


	Year Ended
	December 31, 2017
	North America		Europe & Africa		Corporate		Total
	(In thousands)
Restructuring expenses	$	3,668	$	2,942	$	3,744	$	10,354

As of December 31, 2017, $5.4 million of the employee severance, lease and contract termination costs, were unpaid and presented within the Current portion of other long-term liabilities, Accrued liabilities, and Other long-term liabilities line items in the accompanying Consolidated Balance Sheets.


	As of December 31, 2017
	North America		Europe & Africa		Corporate		Total
	(In thousands)
Current portion of other long-term liabilities	$	—	$	52	$	—	$	52
Accrued liabilities		—		932		2,628		3,560
Other long-term liabilities		—		1,440		331		1,771
Total restructuring liabilities	$	—	$	2,424	$	2,959	$	5,383

The changes in the Company’s restructuring liabilities consisted of the following:


	(In thousands)
Restructuring liabilities as of January 1, 2017	$	—
Restructuring expenses		10,354
Payments		(4,971)
Restructuring liabilities as of December 31, 2017	$	5,383

(g) Cash and Cash Equivalents

For purposes of reporting financial condition and cash flows, cash and cash equivalents include cash in bank and short-term deposit sweep accounts. Additionally, the Company maintains cash on deposit with banks that is pledged for a particular use or restricted to support a potential liability. These balances are classified as Restricted cash in the Current assets or Noncurrent assets line items in the accompanying Consolidated Balance Sheets based on when the Company expects this cash to be paid. Current restricted cash consisted of amounts collected on behalf of, but not yet remitted to, certain of the Company’s merchant customers or third-party service providers. The Company held $48.3 million and $32.2 million of Restricted cash in the Current assets line item in the accompanying Consolidated Balance Sheets as of December 31, 2017 and 2016, respectively. These assets are offset by accrued liability balances in the Current liability line item in the accompanying Consolidated Balance Sheets.

(h) ATM Cash Management Program

The Company relies on arrangements with various banks to provide the cash that it uses to fill its Company-owned, and in some cases merchant-owned and managed services ATMs. The Company refers to such cash as “vault cash.” The Company pays a monthly fee based on the average outstanding vault cash balance, as well as fees related to the bundling and preparation of such cash prior to it being loaded in the ATMs. At all times, beneficial ownership of the cash is retained by the vault cash providers, and the Company has no right to the cash and no access to the cash except for the ATMs that are serviced by the Company’s wholly-owned armored courier operations in the U.K. While the U.K. armored courier operations have physical access to the cash loaded in the ATMs, beneficial ownership of that cash remains with the vault cash provider at all times. The Company’s vault cash arrangements expire at various times through November 2021. (For additional information related to the concentration risk associated with the Company’s vault cash arrangements, see Note 19. Concentration Risk.) Based on the foregoing, the ATM vault cash, and the related obligations, are not reflected in the consolidated financial statements. The average outstanding vault cash balance in the Company’s ATMs for the quarters ended December 31, 2017 and 2016 was approximately $3.9 billion and approximately $3.5 billion, respectively.

(i) Accounts Receivable, net of Allowance for Doubtful Accounts

Accounts receivable are comprised of amounts due from the Company’s clearing and settlement banks for transaction revenues earned on transactions processed during the month ending on the balance sheet date, as well as receivables from bank-branding and network-branding customers, and for ATMs and ATM-related equipment sales and service. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts represents the Company’s best estimate of the amount of probable credit losses on the Company’s existing accounts receivable. The Company reviews its allowance for doubtful accounts monthly and determines the allowance based on an analysis of its past due accounts. All balances over 90 days past due are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

(j) Inventory, net

The Company has adopted the provisions of ASU 2015-11, which requires entities to measure their inventory at the lower of cost and net realizable value. The adoption of ASU 2015-11, effective for annual periods beginning after December 15, 2016, did not have an impact on the Company’s consolidated financial statements. The Company’s inventory is determined using the average cost method. The Company periodically assesses its inventory, and as necessary, adjusts the carrying values to the lower of cost and net realizable value.

The following table reflects the Company’s primary inventory components:


	December 31, 2017		December 31, 2016
	(In thousands)
ATMs	$	3,181	$	1,915
ATM spare parts and supplies		12,935		12,556
Total inventory		16,116		14,471
Less: Inventory reserves		(1,833)		(1,944)
Inventory, net	$	14,283	$	12,527

(k) Property and Equipment, net

Property and equipment are stated at cost, and depreciation is calculated using the straight-line method over estimated useful lives ranging from three to ten years. Most new ATMs are depreciated over eight years and most refurbished ATMs and installation-related costs are depreciated over five years, all on a straight-line basis. Leasehold improvements and property acquired under capital leases are amortized over the useful life of the asset or the lease term, whichever is shorter. Also reported in property and equipment are ATMs and the associated equipment the Company has acquired for future installation or has temporarily removed from service and plans to re-deploy. These ATMs are held as available for deployment or deployments in process and are not depreciated until installed or re-deployed. Significant refurbishment costs that extend the useful life of an asset, or enhance its functionality are capitalized and depreciated over the estimated remaining life of the improved asset. Property and equipment are reviewed for impairment at least annually and additionally whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

In most of the Company’s markets, maintenance services on ATMs are generally performed by third-party service providers and are generally incurred as a fixed fee per month per ATM. In the U.K. and Canada maintenance services are to differing degrees mostly performed by in-house technicians. In all cases, maintenance costs are expensed as incurred.

Also reported within property and equipment are costs associated with internally-developed products. The Company capitalizes certain internal costs associated with developing new or enhanced products and technology that are expected to benefit multiple future periods through enhanced revenues and/or cost savings and efficiencies. Internally developed projects are placed into service and depreciation is commenced once the products are completed and are available for use. These projects are generally depreciated on a straight-line basis over estimated useful lives of three to five years. During the years ended December, 31, 2017 and 2016, the Company capitalized internal development costs of approximately $5.5 million and $5.0 million, respectively.

Depreciation expense for the years ended December 31, 2017, 2016, and 2015 was $120.2 million, $89.1 million, and $82.8 million, respectively. As of December 31, 2017, the Company did not have any material capital leases outstanding.

(l) Intangible Assets Other Than Goodwill

The Company’s intangible assets include merchant and bank-branding contracts/relationships acquired in connection with acquisitions of ATMs and ATM-related assets (i.e., the right to receive future cash flows related to transactions occurring at these ATM locations), exclusive license agreements and site acquisition costs (i.e., the right to be the exclusive ATM provider, at specific ATM locations, for the time period under contract with a merchant customer), trade names, technology, non-compete agreements, and deferred financing costs relating to the Company’s revolving credit facility (see Note 10. Long-Term Debt).

The estimated fair value of the merchant and bank-branding contracts/relationships within each acquired portfolio is determined based on the estimated net cash flows and useful lives of the underlying merchant or bank-branding contracts/relationships, including expected renewals. The contracts/relationships comprising each acquired portfolio are typically fairly similar in nature with respect to the underlying contractual terms and conditions. Accordingly, the Company generally pools such acquired contracts/relationships into a single intangible asset, by acquired portfolio, for purposes of computing the related amortization expense. The Company amortizes such intangible assets on a straight-line basis over the estimated useful lives of the portfolios to which the assets relate. Because the net cash flows associated with the Company’s acquired merchant and bank-branding contracts/relationships have generally increased subsequent to the acquisition date, the use of a straight-line method of amortization effectively results in an accelerated amortization schedule. The estimated useful life of each portfolio is determined based on the weighted average lives of the expected cash flows associated with the underlying contracts/relationships comprising the portfolio, and takes into consideration expected renewal rates and the terms and significance of the underlying contracts/relationships themselves. Costs incurred by the Company to renew or extend the term of an existing contract/relationship are expensed as incurred, except for any direct payments made to the merchants, which are set up as new intangible assets (exclusive license agreements). Certain acquired merchant and bank-branding contracts/relationships may have unique attributes, such as significant contractual terms or value, and in such cases, the Company will separately account for these contracts/relationships in order to better assess the value and estimated useful lives of the underlying contracts/relationships.

The Company tests its acquired merchant and bank-branding contract/relationship intangible assets for impairment, together with the related ATMs, on an individual merchant and bank-branding contract/relationship basis for the Company’s significant acquired contracts/relationships, and on a pooled or portfolio basis (by acquisition) for all other acquired contracts/relationships. If, subsequent to the acquisition date, circumstances indicate that a shorter estimated useful life is warranted for an acquired portfolio or an individual contract/relationship as a result of changes in the expected future cash flows associated with the individual merchant and bank-branding contracts/relationships comprising that portfolio or individual contract/relationship, then that individual contract/relationship or portfolio’s remaining estimated useful life and related amortization expense are adjusted accordingly on a prospective basis.

Whenever events or changes in circumstances indicate that a merchant or bank-branding contract/relationship intangible asset may be impaired, the Company evaluates the recoverability of the intangible asset, and the related ATMs, by measuring the related carrying amounts against the estimated undiscounted future cash flows associated with the related contract/relationship or portfolio of contracts/relationships. Should the sum of the expected future net cash flows be less than the carrying values of the tangible and intangible assets being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying values of the ATMs and intangible assets exceeded the calculated fair value.

During September 2017, the Company experienced a significant market shift in Australia, which caused an impairment analysis to be performed that resulted in a $54.5 million impairment of the customer relationships and trade name intangible assets held in the Australia & New Zealand reporting unit. For additional information see (m) Goodwill- Interim Evaluation as of September 30, 2017 and Note 7. Intangible Assets.

(m) Goodwill

Included within the Company’s assets are goodwill balances that have been recognized in conjunction with its purchase accounting for completed business combinations. Under U.S. GAAP, goodwill is not amortized but is evaluated periodically for impairment. The Company performs this evaluation annually as of December 31 or more frequently if there are indicators that suggest the fair value of a reporting unit may be below its carrying value. The Company initially assesses qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment analysis. The qualitative and quantitative evaluations are performed at a reporting unit level. Reporting units are identified based on a number of factors, including: (i) whether or not the group has any recorded goodwill, (ii) the availability of discrete financial information, and (iii) how business unit performance is measured and reported. The Company has identified seven separate reporting units for its goodwill assessments: (i) the U.S. operations, (ii) the U.K. operations, (iii) the Australia & New Zealand operations, (iv) the Canada operations, (v) the South African operations, (vi) the German operations, and (vii) the Mexico operations. Based on a qualitative assessment, if it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative goodwill impairment analysis using a two-step approach to test goodwill for potential impairment. Step One of the quantitative approach compares the estimated fair value of a reporting unit to its carrying value. If the carrying value exceeds the estimated fair value, then a Step Two impairment calculation is performed. Step Two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit, as if the reporting unit was newly acquired in a business combination. If the carrying value of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized. In connection with the identification of potential impairment triggering events, the long-lived assets (intangibles assets other than goodwill and related ATM fixed assets) held by the reporting units may, on the basis of a qualitative and quantitative analysis, be determined to have carrying values that are not recoverable and in excess of their associated fair values, in which case an impairment would also be recognized related to these intangible and fixed assets.

Interim Evaluation as of September 30, 2017

In late September 2017, Australia’s four largest banks, the Commonwealth Bank of Australia (“CBA”), Australia and New Zealand Banking Group Limited (“ANZ”), Westpac Banking Corporation (“Westpac”), and National Australia Bank Limited (“NAB”), each independently announced decisions to remove all direct charges to users on domestic transactions completed on their respective ATM networks. Collectively, these four banks account for approximately one third of the total ATMs in Australia. This unexpected market shift appears to have been instigated by a decision and announcement by CBA, the largest Australian bank, to immediately remove direct charges to all users of its ATMs, regardless of whether or not the ATM user is a customer of the bank. In early October 2017, ANZ, Westpac, and NAB followed by removing direct charges on their ATM networks. Australia has historically been a direct charge ATM market, where cardholders pay a fee (or “direct charge”) to the operator of an ATM for each transaction, unless the ATM where the transaction was completed is part of the cardholder’s issuing bank ATM network. There currently is no broad interchange arrangement in Australia between card issuers and ATM operators to compensate the ATM operator for its service to a financial institution’s cardholder. During the nine months ended September 30, 2017, more than 80% of the Company’s revenues in Australia were sourced from direct charges paid by cardholders. As a result of this introduction of free-to-use ATMs in Australia and the resulting significant increase in availability of free-to-use ATMs to users, the Company determined that its future surcharge revenues in Australia had likely been materially adversely impacted. These developments were identified as an indicator of impairment, and the Company determined that in the presence of this indicator that it was more-likely-than-not that the fair value of the Australia & New Zealand reporting unit had fallen below its carrying value.

In response to the interim indicator of impairment, the Company performed a quantitative Step One analysis to assess the fair value of its reporting units as of September 30, 2017. In this quantitative analysis, the fair value of all of the Company’s reporting units was determined using a combination of the income approach and the market approach. The income approach estimates the fair value of the reporting units based on estimates of the present value of future cash flows. The Company uses significant estimates to develop its forecasts used in the income approach. These estimates include growth rates in revenues and costs, capital expenditure requirements, operating margins and tax rates. The income approach involves many significant estimates and judgments, including valuation multiples assigned to projected earnings before interest expense, income taxes, depreciation and amortization expense (“EBITDA”) to estimate the terminal values of reporting units. The financial forecasts take into consideration many factors, including historical results and operating performance, related industry trends, pricing strategies, customer analysis, operational issues, competitor analysis, and marketplace data, among others. The assumptions used in the discounted cash flow analysis are inherently uncertain and require significant judgment on the part of management.

The discount rates used in the Step One income approach were determined using a weighted average cost of capital that reflected the risks and uncertainties in each reporting unit’s cash flow estimates. The weighted average cost of capital included an estimated cost of debt and equity. The cost of equity was estimated using the capital asset pricing model, which included inputs for a long-term risk-free rate, equity risk premium, country risk premium, and a beta volatility factor estimate. The discount rates utilized in the September 30, 2017 Step One analysis ranged from 9.3% to 16.9% across the Company’s seven reporting units. The market approach resulted in an estimated fair value based on the Company’s market capitalization that is computed using the market price of its common stock and the number of shares outstanding as of the impairment test date. The sum of the estimated fair values for each reporting unit, as computed using the income approach, was then compared to the fair value of the Company as a whole, as determined based on the market approach plus an estimated control premium. All of the assumptions utilized in estimating the fair value of the Company’s reporting units and performing the goodwill impairment test are inherently uncertain and require significant judgment on the part of management.

The Step One analysis, performed as of September 30, 2017 indicated that the fair value of the Company’s Australia & New Zealand reporting unit was significantly below its carrying value. Therefore, the Company engaged a third party valuation expert and proceeded with its Step Two analysis utilizing an income approach consistent with the approach used to perform the purchase accounting for its recent business combinations. With respect to the Company’s forecasted financial projections for its Australia & New Zealand reporting unit, management made certain assumptions regarding the potential impact this triggering event may have on the Company’s future revenues based on inherently uncertain information as a result of the recent market shift. With only very preliminary information available regarding the impact of the recent changes implemented by Australia’s four largest banks, the Company evaluated a range of possible impacts and ultimately determined that there would likely be a significant and prolonged adverse impact on the Company’s ATMs as a result of the banks’ actions described above, and the Company incorporated assumptions related to these potential impacts in its financial forecasts. Management prepared these forecasts based on the best information available at the time, including assumptions related to future transaction volumes and consumer habits. While management attempted to make reasonable and conservative assessments of future activities, those assumptions, and future impairment assessments, are subject to change in the future as actual patterns and transaction volumes develop.

Upon completion of the goodwill impairment analysis as of September 30, 2017, the Company determined that the implied fair value of its goodwill associated with its Australia & New Zealand reporting unit was below its carrying value. Accordingly, the Company recorded a goodwill impairment charge of $140.0 million to reduce the goodwill balance of its Australia & New Zealand reporting unit to its implied fair value. The Company also recognized a $54.5 million impairment of the customer relationships and trade name intangible assets in the Australia & New Zealand reporting unit. The carrying values of these assets were not deemed recoverable via their undiscounted cash flows; therefore, the fair values of these assets were re-evaluated using the income approach as of September 30, 2017, consistent with the approach used to value these assets in conjunction with the acquisition of DCPayments that was completed on January 6, 2017. The goodwill and intangible asset impairment charges are recognized within the Goodwill and intangible asset impairment line item in the accompanying Consolidated Statement of Operations. In addition, the Company recognized an impairment charge of $19.0 million related to other long-lived assets in the Australia & New Zealand reporting unit, and a charge of $2.5 million to adjust the Australia & New Zealand reporting unit inventory to its estimated net realizable value. The other long-lived assets and inventory charges are recognized in the Loss (gain) on disposal and impairment of assets line item in the accompanying Consolidated Statement of Operations. The Company recognized a non-cash income tax benefit of $22.5 million in the three and nine months ended September 30, 2017, to remove the deferred tax liabilities associated with the intangible and fixed assets that were impaired.

Annual Goodwill Impairment Evaluation as of December 31, 2017

As described above, the Company performs its goodwill impairment evaluation annually as of December 31 or more frequently if there are indicators that suggest the fair value of a reporting unit may be below its carrying value. For the goodwill impairment evaluation as of December 31, 2017, the Company elected to forego the qualitative assessment and instead performed the quantitative assessment under the applicable guidance.

The assessment as of December 31, 2017 was prepared using updated forecasts, estimates, and discount rates ranging from approximately 9.9% to 17.2% for the reporting units. This evaluation indicated that the fair value of all the reporting units were in excess of their respective carrying values as of December 31, 2017.

The majority of the Company’s reporting units were determined to be significantly in excess of their carrying value as of December 31, 2017. The fair value of the Company’s Canada reporting unit was not significantly in excess of its carrying value as of December 31, 2017, due to the recent acquisition of the Canada operations of DCPayments in January 2017 at fair value. Management will continue to monitor the transaction volumes, operating performance, and future projections for this reporting unit to determine if there are any impairment indicators in future periods. The estimated combined fair value of all reporting units as of December 31, 2017 resulted in an implied control premium for the enterprise comparable to recent market transactions.

(n) Income Taxes

Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes, which are based on temporary differences between the amount of taxable income and income before provision for income taxes and between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are reported in the consolidated financial statements at current income tax rates. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As the ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible, the Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In the event the Company does not believe it is more likely than not that it will be able to utilize the related tax benefits associated with deferred tax assets, valuation allowances will be recorded to reserve for the assets.

(o) Asset Retirement Obligations (“ARO”)

The Company estimates the fair value of future ARO costs associated with the costs to deinstall its ATMs, and in some cases, restore the ATM sites to their original condition, and recognizes this amount as a liability on a pooled basis based on the estimated deinstallation dates in the period in which it is incurred and can be reasonably estimated. The Company’s estimates of fair value involve discounted future cash flows. The Company capitalizes the initial estimated fair value amount of the ARO asset and depreciates the ARO over the asset’s estimated useful life. Subsequent to recognizing the initial liability, the Company recognizes an ongoing expense for changes in such liabilities due to the passage of time (i.e., accretion expense), which is recorded in the Depreciation and accretion expense line item in the accompanying Consolidated Statements of Operations. As the liability is not revalued on a recurring basis, it is periodically reevaluated based on current machine count and cost estimates. Upon settlement of the liability, the Company recognizes a gain or loss for any difference between the settlement amount and the liability recorded. For additional information related to the Company’s AROs, see Note 11. Asset Retirement Obligations.

(p) Revenue Recognition

ATM operating revenues. Substantially all of the Company’s revenues are from ATM operating and transaction-based fees, which are reflected in the ATM operating revenues line item in the accompanying Consolidated Statements of Operations. ATM operating revenues primarily include the following:

Surcharge, interchange, and dynamic currency conversion revenues, which are recognized daily as the underlying transactions are processed.

Bank-branding revenues, which are provided by the Company’s bank-branding arrangements, under which financial institutions generally pay a monthly per ATM fee to the Company to place their brand logo on selected ATMs within the Company’s portfolio. In return, the branding financial institution’s cardholders have access to use those bank-branded ATMs without paying a surcharge fee. The monthly per ATM fees are recognized as revenues on a monthly basis as earned. In addition to the monthly per ATM fees, the Company may also receive a one-time set-up fee per ATM. This set-up fee is separate from the recurring, monthly per ATM fees and is meant to compensate the Company for the burden incurred related to the initial set-up of a bank-branded ATM versus the on-going monthly services provided for the actual bank-branding. The Company has deferred these set-up fees (as well as the corresponding costs associated with the initial set-up) and is recognizing such amounts as revenue (and expense) over the terms of the underlying bank-branding agreements on a straight-line basis.

Surcharge-free network revenues, which are produced by the operations of the Company’s Allpoint business. The Company allows cardholders of financial institutions that participate in Allpoint to use the Company’s network of ATMs on a surcharge-free basis. In return, the participating financial institutions pay a fixed monthly fee per cardholder or a fixed fee per transaction to the Company. These surcharge-free network fees are recognized as revenues on a monthly basis as earned.

Managed services revenues, which the Company typically receives a fixed management fee per ATM and/or fixed fee per transaction. While the fixed management fee per ATM and any transaction-based fees are recognized as revenue as earned (generally monthly), the surcharge and interchange fees from the ATMs under the managed services arrangement are earned by the Company’s customer, and therefore, are not recorded as revenue of the Company.

Other revenues, which includes transaction processing for third party ATM operators, advertising revenues, professional services, and other fees. The Company typically recognizes these revenues as the services are provided and the revenues earned.

ATM product sales. The Company also earns revenues from the sale of ATMs and ATM-related equipment and other non-transaction-based revenues. Such amounts are reflected in the ATM product sales and other revenues line item in the accompanying Consolidated Statements of Operations. These revenues consist primarily of sales of ATMs and ATM-related equipment to merchants operating under merchant-owned arrangements, as well as sales under the Company’s value-added reseller (“VAR”) program with a third party. Revenues related to the sale of ATMs and ATM-related equipment to merchants are recognized when the equipment is delivered to the customer and the Company has completed all required installation and set-up procedures. With respect to the sale of ATMs to associate VARs, the Company recognizes revenues related to such sales when the equipment is delivered to the associate VAR. The Company typically extends 30 day terms and receives payment directly from the associate VAR irrespective of the ultimate sale to a third-party.

ATM services. The Company also receives revenues from the sale of services to retailers, including the provision of cash delivery and maintenance services. Revenues from this business activity have been reported within the ATM product sales and other revenues line item in the accompanying Consolidated Statements of Operations. The Company recognizes and invoices revenues related to these services when the service has been performed.

Merchant-owned arrangements. In connection with the Company’s merchant-owned ATM arrangements, the Company typically pays all or a sizable portion of the transaction fees that it collects to the merchant as payment for providing, placing, and maintaining the ATM. Pursuant to the guidance in the FASB ASC 605-45-45, Revenue Recognition - Principal Agent Considerations - Other Presentation Matters, the Company has assessed whether to record such payments as a reduction of associated ATM transaction revenues or a cost of revenues. Specifically, if the Company acts as the principal and is the primary obligor in the ATM transactions, provides the processing for the ATM transactions, has significant influence over pricing, and has the risks and rewards of ownership, including a variable earnings component and the risk of loss for collection, the Company recognizes the surcharge and interchange fees on a gross basis and does not reduce its reported revenues for payments made to the various merchants who are also involved in the business activity. As a result, for agreements under which the Company acts as the principal, the Company records the total amounts earned from the underlying ATM transactions as ATM operating revenues and records the related merchant commissions as a cost of ATM operating revenues. However, for those agreements in which the Company does not meet the criteria to qualify as the principal agent in the transaction, the Company does not record the related surcharge and interchange revenue as the rights associated with this revenue stream inure to the benefit of the merchant.

(q) Share-Based Compensation

The Company calculates the fair value of share-based instruments awarded to Company’s Board of Directors (the “Board”) and its employees on the date of grant and recognizes the calculated fair value, net of estimated forfeitures, as compensation expense over the underlying requisite service periods of the related awards. For additional information related to the Company’s share-based compensation, see Note 3. Share-Based Compensation.

(r) Derivative Financial Instruments

The Company utilizes derivative financial instruments to hedge its exposure to changing interest rates related to the Company’s ATM cash management activities, and on a limited basis, the Company’s exposure to foreign currency transactions. The Company does not enter into derivative transactions for speculative or trading purposes, although circumstances may subsequently change the designation of its derivatives to economic hedges.

The Company records derivative instruments at fair value in the accompanying Consolidated Balance Sheets. These derivatives, which consist of interest rate swap and foreign currency forward contracts, are valued using pricing models based on significant other observable inputs (Level 2 inputs under the fair value hierarchy prescribed by U.S. GAAP), while taking into account the credit worthiness of the party that is in the liability position with respect to each trade. The majority of the Company’s derivative transactions have been accounted for as cash flow hedges, and accordingly, changes in the fair values of such derivatives have been reported in the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets. For additional information related to the Company’s derivative financial instruments, see Note 15. Derivative Financial Instruments.

In connection with the issuance of the $287.5 million of 1.00% Convertible Senior Notes due December 2020 (the “Convertible Notes”), the Company entered into separate convertible note hedge and warrant transactions with certain of the initial purchasers to reduce the potential dilutive impact upon the conversion of the Convertible Notes. For additional information related to the Company’s convertible note hedges and warrant transactions, see Note 10. Long-Term Debt.

(s) Fair Value of Financial Instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. U.S. GAAP does not require the disclosure of the fair value of lease financing arrangements and non-financial instruments, including intangible assets such as goodwill and the Company’s merchant and bank-branding contracts/relationships. For additional information related to the Company’s fair value evaluation of its financial instruments, see Note 16. Fair Value Measurements.

(t) Foreign Currency Exchange Rate Translation

The Company is exposed to foreign currency exchange rate risk with respect to its international operations. The functional currencies of these international subsidiaries are their respective local currencies. The results of operations of the Company’s international subsidiaries are translated into U.S. dollars using average foreign currency exchange rates in effect during the periods in which those results are recorded and the assets and liabilities are translated using the foreign currency exchange rate in effect as of each balance sheet reporting date. These resulting translation adjustments have been recorded in the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets.

The Company currently believes that the unremitted earnings of all of its international subsidiaries will be reinvested in the corresponding country of origin for an indefinite period of time. Accordingly, no deferred taxes have been provided for the differences between the Company’s book basis and underlying tax basis in those subsidiaries or on the foreign currency translation adjustment amounts.

(u) Treasury Shares

Immediately prior to the Redomicile Transaction, 7,310,022 treasury shares of Cardtronics Delaware with a cost basis of $106.5 million were cancelled with the offsetting impact recorded in the Additional paid-in capital and Retained earnings line items in the accompanying Consolidated Balance Sheets. As a result, the Company does not currently hold any treasury shares. Prior to the Redomicile Transaction, treasury shares were recorded at cost and carried as a reduction to Shareholders’ equity.

(v) Advertising Costs

Advertising costs are expensed as incurred and totaled $5.0 million, $5.0 million, and $5.4 million during the years ended December 31, 2017, 2016, and 2015, respectively, and are reported in the Selling, general, and administrative expenses line item in the accompanying Consolidated Statements of Operations.

(w) Working Capital Deficit

The Company’s surcharge and interchange revenues are typically collected in cash on a daily basis or within a short period of time subsequent to the end of each month. However, the Company typically pays its vendors on 30 day terms and is not required to pay certain of its merchants until 20 days after the end of each calendar month. As a result, the Company will typically utilize the excess available cash flow to reduce borrowings made under the Company’s revolving credit facility. Accordingly, the Company’s balance sheets will often reflect a working capital deficit position. The Company considers such a presentation to be a normal part of its ongoing operations.

(x) Contingencies

The Company evaluates its accounting and disclosures for contingencies on a recurring basis in accordance with U.S. GAAP. As of December 31, 2017, the Company had a material contingent liability for acquisition-related contingent consideration associated with its purchase of Spark ATM Systems Pty Ltd. See additional discussion in Note. 2 Acquisitions and Divestitures and Note. 17 Commitments and Contingencies.