Income Taxes

12 Months Ended

Dec. 31, 2019

On December 22, 2017, House of Representatives 1 (“H.R. 1”), originally known as the Tax Cuts and Jobs Act (“U.S. Tax Reform”), was enacted and signed into legislation. Under U.S. GAAP, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. As a result of this legislation, in the three months ended December 31, 2017, the Company provisionally recognized a one-time net tax benefit totaling $11.6 million. This amount included an estimated one-time tax benefit of $19.4 million due to the re-measurement of the Company’s net deferred tax liabilities, primarily related to the

change in the U.S. federal corporate income tax rate from 35% to 21%. Partially offsetting this non-cash book tax benefit, the Company recognized an estimated one-time tax expense of $7.8 million on its accumulated undistributed foreign earnings pertaining to foreign operations under the U.S. business, which the Company will elect to pay over an eight-year period. In accordance with SEC Staff Accounting Bulletin No. 118 (SAB 118), the Company adjusted the provisional estimates during the three months ended September 30, 2018. The Company decreased its estimate of the one-time tax benefit by $1.2 million upon its completion of the earnings and profits calculations of its foreign subsidiaries. Offsetting this benefit, the Company recognized a charge of $1.0 million for deferred tax assets that will not be realized, determined after the release of IRS Notice 2018-68, clarifying deduction limitations for remunerations of covered persons. During the three months ended December 31, 2018, the Company additionally reduced its one-time tax benefit by $0.2 million and completed its accounting for the tax effects of the U.S. Tax Reform.

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 corporate tax rate was 35%, and after the redomicile to the U.K., the Cardtronics parent company statutory tax rate was 19% for the Company’s calendar reporting year 2019, 19% for 2018, and 19.25% for 2017. 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 (loss) before income taxes consisted of the following:



	Year Ended December 31,
	2019		2018			2017
	(In thousands)
U.S.	$	38,254	$	(20,066	)	$	24,919
Non-U.S.	26,533		34,179			(179,562		)
Total pre-tax book income (loss)	$	64,787	$	14,113		$	(154,643	)

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



	Year Ended December 31,
	2019			2018			2017
	(In thousands)
Current
U.S. federal	$	289		$	(1,462	)	$	(493	)
U.S. state and local	1,527			1,365			1,657
Non-U.S.	7,965			12,292			5,842
Total current	$	9,781		$	12,195		$	7,006

Deferred
U.S. federal	$	7,636		$	1,349		$	732
U.S. state and local	2,715			1,816			874
Non-U.S.	(3,610		)	(4,903		)	(17,904		)
Total deferred	6,741			(1,738		)	(16,298		)
Total income tax expense (benefit)	$	16,522		$	10,457		$	(9,292	)

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



	Year Ended December 31,
	2019			2018			2017
	(In thousands)
Income tax expense (benefit), at the U.K. statutory tax rate of 19%, 19%, and 19.25% for the years ended December 31, 2019, 2018, and 2017, respectively.	$	12,309		$	2,681		$	(29,769	)
Provision to return and deferred tax adjustments	157			1,017			(264		)
U.S. state tax, net of federal benefit	3,095			637			2,181
Permanent adjustments	606			738			1,411
Tax rates in excess of (less than) statutory tax rates	1,143			2,247			(18,398		)
Impact of Finance Structure	(4,434		)	354			(5,734		)
Nondeductible/(nontaxable) transaction costs	(3,816		)	(425		)	6,743
Goodwill impairment (non-deductible)	1,941			—			41,510
US Tax Reform (net impact)	764			(435		)	(11,569		)
Share-based Compensation	2,223			2,107			(2,464		)
Capital Gains	—			851			—
Other	499			48			(206		)
Subtotal	14,487			9,820			(16,559		)
Change in valuation allowance	2,035			637			7,267
Total income tax expense (benefit)	$	16,522		$	10,457		$	(9,292	)

The net income tax expense (benefit) is attributable to a combination of 1) tax benefits from the utilization of interest deductions disallowed in the prior year, 2) the additional tax expense related to share-based compensation, 3) the nontaxable gain recorded to revise the fair value of the acquisition related contingent consideration liability, 4) the goodwill impairment recognized and 5) the mix of earnings across jurisdictions.

The Company’s net deferred tax assets and liabilities, by segment, consisted of the following:



	Year Ended December 31, 2019
	North America			Europe & Africa			Australia & New Zealand			Corporate		Total
	(In thousands)
Noncurrent deferred tax asset	$	38,140		$	16,466		$	11,400		$	1,730	$	67,736
Valuation allowance	(5,970		)	(1,427		)	(4,046		)	—		(11,443		)
Noncurrent deferred tax liability	(78,211		)	(4,447		)	(7,354		)	—		(90,012		)
Net noncurrent deferred tax (liability) asset	$	(46,041	)	$	10,592		$	—		$	1,730	$	(33,719	)



	Year Ended December 31, 2018
	North America			Europe & Africa			Australia & New Zealand			Corporate		Total
	(In thousands)
Noncurrent deferred tax asset	$	31,248		$	14,546		$	14,389		$	1,829	$	62,012
Valuation allowance	(2,546		)	(1,442		)	(5,078		)	—		(9,066		)
Noncurrent deferred tax liability	(68,430		)	(7,745		)	(9,311		)	—		(85,486		)
Net noncurrent deferred tax (liability) asset	$	(39,728	)	$	5,359		$	—		$	1,829	$	(32,540	)

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, 2019			December 31, 2018
	(In thousands)
Noncurrent deferred tax assets
Reserve for receivables	$	625		$	699
Accrued liabilities and inventory reserves	3,231			5,887
Net operating loss carryforward	31,555			21,733
Unrealized losses on interest rate swap contracts	1,338			25
Share-based compensation expense	3,044			2,609
Asset retirement obligations	1,101			2,481
Tangible and intangible assets	18,491			19,729
Deferred revenue	4,294			2,262
Other	4,057			6,587
Subtotal	67,736			62,012
Valuation allowance	(11,443		)	(9,066		)
Noncurrent deferred tax assets	$	56,293		$	52,946

Noncurrent deferred tax liabilities
Tangible and intangible assets	$	(88,017	)	$	(79,978	)
Asset retirement obligations	(29		)	(30		)
Unrealized gain on interest rate swap contracts	—			(5,048		)
Other	(1,966		)	(430		)
Noncurrent deferred tax liabilities	$	(90,012	)	$	(85,486	)

Net deferred tax liability	$	(33,719	)	$	(32,540	)

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, 2019, and the weight of all evidence, the Company concluded that maintaining valuation allowances on deferred tax assets in Australia, Mexico, Canada, 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, 2019, the Company had approximately $54.5 million in U.S. federal net operating loss carryforwards, of which $6.1 million will begin expiring in 2021, approximately $42.3 million in Canadian net operating loss carryforwards that will begin expiring in 2031, and approximately $9.3 million in net operating loss carryforwards in Mexico that are subject to expiration based on a 10 year loss carryforward limitation. The deferred tax benefits associated with such carryforwards in Canada and Mexico, to the extent they are not offset by deferred tax liabilities, have been fully reserved for through a valuation allowance.

The Company currently believes that the unremitted earnings of certain of its subsidiaries will be indefinitely reinvested in the corresponding country of origin. Accordingly, no deferred taxes have been provided for on the differences between the Company’s book basis and underlying tax basis in those subsidiaries.

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 2014. The Company has

recorded an uncertain tax benefit of $2.4 million, of which $1.5 million was for net operating losses generated in prior years with an associated valuation allowance, and $0.4 million was for a deferred tax asset for the related US federal tax benefit. A net amount of $0.5 million of this uncertain tax benefit was recorded to tax expense in 2019.