Derivative Financial Instruments

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

(13) Derivative Financial Instruments

Risk Management Objectives of Using Derivatives Interest rate risk

The Company is exposed to interest rate risk associated with its vault cash rental obligations and borrowings under its revolving credit facility. The Company uses varying notional amount interest rate swap contracts and interest rate cap agreements (“Interest Rate Derivatives”) to manage the interest rate risk associated with its vault cash rental obligations in the U.S., Canada, the U.K., and Australia. The Company also uses interest rate swap contracts to mitigate its exposure to floating interest rates on its anticipated revolving credit facility borrowings.

The majority of the Company’s Interest Rate Derivatives serve to mitigate interest rate risk exposure by converting a portion of the Company’s monthly floating-rate vault cash rental payments to either monthly fixed-rate vault cash rental payments or to vault cash rental payments with a capped rate. Typically, the Company receives monthly floating-rate payments from its Interest Rate Derivative 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. The floating-rate payments may or may not be capped or limited. 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 and revolving credit facility obligations from floating-rate to a fixed or a capped rate, the impact of favorable and unfavorable changes in future interest rates on the monthly vault cash rental payments recognized in the Cost of ATM operating revenues line in the accompanying Consolidated Statement of Operations has been reduced.

Risk Management Objectives of Using Derivatives - Foreign Currency Exchange Rate Risk

The Company is also exposed to foreign currency exchange rate risk with respect to its operations outside the U.S. The Company has at times used foreign currency forward contracts to mitigate its foreign exchange rate risk associated with certain anticipated transactions. The Company regularly designates its foreign currency derivatives as cash flow hedges, however, the Company is not presently party to any foreign currency derivatives designated as cash flow hedges. As noted below, the Company is party to certain foreign currency forward contracts that are not designated as hedges at March 31,2020.

None of the Company’s existing derivative contracts contain credit-risk-related contingent features.

Undesignated Foreign Currency Forward Contracts

On October 14, 2019, the Company entered into foreign currency forward contracts with an aggregate notional amount of $150 million and a fixed rate of 1.267 U.S. dollar to 1 U.K. pounds sterling. These forward contracts allow for settlement between November 2, 2020 and December 1, 2020. Although not designated as hedging instruments for accounting purposes, these forward contracts are associated with the anticipated conversion of U.K. pounds sterling to U.S. dollars to partially fund the repayment of the Company's 1.00% Convertible Notes and serve to mitigate currency fluctuation risk.

Derivative Accounting Policy

The Interest Rate Derivatives discussed above are 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 interest rate derivative instruments not designated as cash flow hedges.

As discussed above, the Company generally utilizes fixed-for-floating Interest Rate Derivatives where the underlying pricing terms of the cash flow hedging instrument agree, in all material respects, with the pricing terms of the anticipated vault cash rental obligations or anticipated Credit Agreement borrowings. Therefore, the amount of ineffectiveness associated with the Interest Rate Derivatives has historically been immaterial. If the Company concludes 1) that the obligations that have been hedged are no longer probable or 2) that the underlying terms of the agreements have changed such that they do not sufficiently agree to the pricing terms of the Interest Rate Derivatives, the Interest Rate Derivative contracts 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 its Interest Rate Derivative contracts 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 Derivative contracts are reported in Accumulated other comprehensive loss, net within the accompanying Consolidated Balance Sheets. The unrealized gains and losses related to these interest rate swap and cap contracts have been reported net of taxes in Accumulated other comprehensive loss, net within the accompanying Consolidated Balance Sheets. For additional information related to the Company’s interest rate swap and cap contracts and the associated fair value measurements, see Note 14. Fair Value Measurements.

In accordance with U.S. GAAP, the Company reports the gain or loss related to each highly effective cash flow hedging instrument, including any ineffectiveness, as a component of Accumulated other comprehensive loss, net within the accompanying Consolidated Balance Sheets and reclassifies the gain or loss into earnings within the Cost of ATM operating revenues, Interest expense, net, or Other income lines of the accompanying Consolidated Statements of Operations in the same period or periods during which the hedged transaction affects and has been forecasted in earnings. The classification of the gain or loss is determined based on the associated hedge designation.

Summary of Outstanding Interest Rate Derivatives

The notional amounts, weighted average fixed rates, and terms associated with the interest rate swap contracts and cap agreement that are currently in place in the U.S., Canada, the U.K, and Australia (as of the date of the issuance of this 2020 Form 10-Q) are as follows:

Outstanding Interest Rate Derivatives Associated with Vault Cash Rental Obligations

North America – Interest Rate Swap Contracts


Notional Amounts U.S. $		Weighted Average Fixed Rate	Term
(In millions)
$	1,500	1.69%	April 1, 2020 – December 31, 2020
$	1,200	1.46%	January 1, 2021 – December 31, 2021
$	1,000	1.17%	January 1, 2022 – December 31, 2022
$	600	0.98%	January 1, 2023 – December 31, 2024

Notional Amounts CAD $

Weighted Average Fixed Rate

Term

(In millions)

125

2.46%

April 1, 2020 – December 31, 2021

North America – Interest Rate Cap Contracts

Notional Amounts
U.S. $

Cap Rate ⁽¹⁾

Term

(In millions)

200

3.25%

January 1, 2021 – December 31, 2023

(1) Maximum amount of interest to be paid each year as per terms of cap. Cost of cap is amortized through vault cash rental expense over term of cap.

Europe & Africa – Interest Rate Swap Contracts

Notional Amounts

Weighted Average

U.K. £

Fixed Rate

Term

(In millions)

500

0.94%

April 1, 2020 – December 31, 2022

Australia & New Zealand – Interest Rate Swap Contracts


Notional Amounts AUS $		Weighted Average Fixed Rate	Term
(In millions)
$	140	1.59%	April 1, 2020 – December 31, 2020
$	40	0.71%	January 1, 2021 – December 31, 2021

Outstanding Interest Rate Derivatives Associated with Revolving Credit Facility Borrowings


Notional Amounts U.K. £		Weighted Average Fixed Rate		Term
(In millions)
£	50	0.95	%	April 1, 2020 – December 31, 2020
£	100	0.64	%	January 4, 2021 – December 31, 2021

`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, 2020				December 31, 2019
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 and cap contracts	Prepaid expenses, deferred costs, and other current assets	$	—	Prepaid expenses, deferred costs, and other current assets	$	1,872
Interest rate swap and cap contracts	Prepaid expenses, deferred costs, and other noncurrent assets	—		Prepaid expenses, deferred costs, and other noncurrent assets	8,766
Interest rate swap and cap contracts	Current portion of other long-term liabilities	(24,417)		Current portion of other long-term liabilities	(7,697)
Interest rate swap and cap contracts	Other long-term liabilities	(34,084)		Other long-term liabilities	(9,723)
Total derivatives designated as hedging instruments, net		$	(58,501)		$	(6,782)

Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Prepaid expenses, deferred costs, and other current assets	2,603			—
Foreign currency forward contracts	Current portion of other long-term liabilities	—		Current portion of other long-term liabilities	(7,868)
Total derivative instruments, net		$	(55,898)		$	(14,650)

Statements of Operations Data


	Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationship	Amount of Loss Recognized in Accumulated Other Comprehensive Loss on Derivative Instruments					Location of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Income		Amount of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Income
	2020		2019			2020		2019
	(In thousands)							(In thousands)
Interest rate swap contracts	$	(42,294)	$	(12,109)	Cost of ATM operating revenues	$	(2,619)	$	338
Interest rate swap contracts	(210)		(312)		Interest expense, net	(43)		(56)
Total	$	(42,504)	$	(12,421)		$	(2,662)	$	282

As of March 31, 2020, the Company expects to reclassify $21.8 million of net derivative-related losses contained in the Accumulated comprehensive loss, net line within its accompanying Consolidated Balance Sheets into earnings during the next twelve months concurrent with the recording of the related vault cash rental expense amounts.

The following table show the impact of our cash flow hedge accounting relationships on the statement of operations for the three months ended March 31, 2020:


	Location and Amount of Loss Recognized in Income on Cash Flow Hedging Relationships in the Three Months Ended
	March 31, 2020						March 31, 2019
	(In thousands)
	Cost of ATM Operating Revenues		Interest Expense, net		Cost of ATM Operating Revenues
Total amount of expense presented in the statements of operations in which the effects of cash flow hedges are recorded	$	193,665	$	6,421	$	206,158

Amount of (loss) gain reclassified from accumulated other comprehensive income into income	(2,619)		(43)		338