(12) Derivative Financial Instruments

Risk Management Objectives of Using Derivatives

The Company is exposed to interest rate risk associated with its vault cash rental obligations and, to a lesser extent, borrowings under its revolving credit facility. The Company utilizes varying notional amount interest rate swap contracts to manage the interest rate risk associated with its vault cash rental obligations in the U.S., the U.K., and Australia. The Company does not currently utilize derivative instruments to manage the interest rate risk associated with its borrowings. The Company is also exposed to foreign currency exchange rate risk with respect to its operations outside the U.S. The Company also uses foreign currency derivatives to hedge its foreign exchange rate risk associated with certain anticipated transactions. Currently, the Company has outstanding forward contracts for the purchase of Canadian dollars totaling approximately $4.8 million, with a duration that extends through December 31, 2018.

The Company’s interest rate swap contracts serve to mitigate interest rate risk exposure by converting a portion of the Company’s monthly floating-rate vault cash rental payments to monthly fixed-rate vault cash rental payments. Typically, the Company receives monthly floating-rate payments from its interest rate swap contract counterparties that correspond to, in all material respects, the monthly floating-rate payments required by the Company to its vault cash rental providers for the portion of the average outstanding vault cash balances that have been hedged. In return, the Company pays its counterparties a monthly fixed-rate amount based on the same notional amounts outstanding. By converting the vault cash rental obligation interest rate from a floating-rate to a fixed-rate, the impact of favorable and unfavorable changes in future interest rates on the monthly vault cash rental payments, and therefore, the Vault cash rental expense line item in the accompanying Consolidated Statement of Operations, has been reduced.

There is never an exchange of the underlying principal or notional amounts associated with the interest rate swap contracts described above. Additionally, none of the Company’s existing interest rate swap contracts contain credit-risk-related contingent features.

Accounting Policy

The interest rate swap contracts discussed above are derivative instruments used by the Company to hedge exposure to variability in expected future cash flows attributable to a particular risk; therefore, they are designated and qualify as cash flow hedging instruments. The Company does not currently hold any derivative instruments not designated as hedging instruments, fair value hedges, or hedges of a net investment in a foreign operation.

The Company reports the effective portion of a gain or loss related to the cash flow hedging instrument as a component of the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets and reclassifies the gain or loss into earnings in the Vault cash rental expense line item in the accompanying Consolidated Statement of Operations in the same period or periods during which the hedged transaction affects and has been forecasted in earnings.

Gains and losses related to the cash flow hedging instrument that represent either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in the Other expense line item in the accompanying Consolidated Statement of Operations. As discussed above, the Company generally utilizes fixed-for-floating interest rate swap contracts in which the underlying pricing terms of the cash flow hedging instrument agree, in all material respects, with the pricing terms of the vault cash rental obligations to the Company’s vault cash providers. Therefore, the amount of ineffectiveness associated with the interest rate swap contracts has historically been immaterial. If the Company concludes that it is no longer probable the expected vault cash obligations that have been hedged will occur, or if changes are made to the underlying contract terms of the vault cash rental agreements, the interest rate swap contract would be deemed ineffective. The Company does not currently anticipate terminating or modifying terms of its existing derivative instruments prior to their expiration dates.

Accordingly, the Company recognizes all of its interest rate swap contracts derivative instruments as assets or liabilities in the accompanying Consolidated Balance Sheets at fair value and any changes in the fair values of the related interest rate swap contracts have been reported in the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets. The Company believes that it is more likely than not that it will be able to realize the benefits associated with its net deferred tax asset positions in the future, therefore, the unrealized gains and losses to the fair value related to the interest rate swap contracts have been reported net of estimated taxes in the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets. For additional information related to the Company’s interest rate swap contracts with respect to its fair value measurements, see Note 13. Fair Value Measurements.

Cash Flow Hedges

Summary of outstanding interest rate swaps in the U.S. and U.K.

The Company is party to varying notional amount interest rate swap contracts in the U.S. and the U.K. The notional amounts, weighted average fixed rates, and terms associated with the Company’s interest rate swap contracts accounted for as cash flow hedges that are currently in place for the U.S. and U.K. (as of the date of the issuance of this Form 10-Q) are as follows:


Notional Amounts		Weighted Average Fixed Rate		Notional Amounts		Weighted Average Fixed Rate
U.S. $		U.S.		U.K. £		U.K.		Term
(In millions)				(In millions)
$	1,450	2.11	%	£	550	0.82	%	April 1, 2018 – December 31, 2018
$	1,000	2.06	%	£	550	0.90	%	January 1, 2019 – December 31, 2019
$	1,000	2.06	%	£	500	0.94	%	January 1, 2020 – December 31, 2020
$	400	1.46	%	£	500	0.94	%	January 1, 2021 – December 31, 2021
$	400	1.46	%	£	500	0.94	%	January 1, 2022 – December 31, 2022

Summary of outstanding interest rate swaps in Australia

The notional amounts, weighted average fixed rates, and terms associated with the Company’s interest rate swap contracts accounted for as cash flow hedges that are currently in place for Australia (as of the date of the issuance of this Form 10-Q) are as follows:


Notional Amounts AUS $		Weighted Average Fixed Rate		Term
(In millions)
$	85	3.11	%	April 1, 2018 – September 28, 2018
$	35	2.98	%	September 29, 2018 – February 28, 2019

The following tables depict the effects of the use of the Company’s derivative interest rate swap contracts in the accompanying Consolidated Balance Sheets and Consolidated Statements of Operations.

Balance Sheet Data


	March 31, 2018			December 31, 2017
Asset (Liability) Derivative Instruments	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
		(In thousands)			(In thousands)
Derivatives designated as hedging instruments:
Interest rate swap contracts	Prepaid expenses, deferred costs, and other current assets	$	3,217	Prepaid expenses, deferred costs, and other current assets	$	1,154
Interest rate swap contracts	Prepaid expenses, deferred costs, and other noncurrent assets		27,005	Prepaid expenses, deferred costs, and other noncurrent assets		14,467
Interest rate swap contracts	Current portion of other long-term liabilities		(2,596)	Current portion of other long-term liabilities		(7,314)
Interest rate swap contracts	Other long-term liabilities		—	Other long-term liabilities		(3,547)
Total derivative instruments, net		$	27,626		$	4,760

Statements of Operations Data


	Three Months Ended
					March 31,
Derivatives in Cash Flow Hedging Relationship	Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss on Derivative Instruments (Effective Portion)				Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)
	2018 (1)		2017			2018		2017
	(In thousands)					(In thousands)
Interest rate swap contracts	$	14,772	$	(3,855)	Cost of ATM operating revenues	$	(2,589)	$	(5,260)

(1)

Also includes an insignificant loss related to foreign currency forward contracts as of the three months ended March 31,, 2018.

As of March 31, 2018, the Company expects to reclassify $2.6 million of net derivative-related losses contained within the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets into earnings during the next twelve months concurrent with the recording of the related vault cash rental expense amounts.