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Derivative Instruments And Hedging Activities | 9 Months Ended
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Sep. 30, 2011
Derivative Instruments And Hedging Activities |
Derivative Instruments And Hedging Activities | 7. Derivative Instruments and Hedging Activities Risk Management Objective of Using Derivatives. We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. Specifically, we may enter into derivative financial instruments to manage exposures arising from business activities resulting in differences in the amount, timing, and duration of our known or expected cash payments principally related to our borrowings. Cash Flow Hedges of Interest Rate Risk. Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps and caps as part of our interest rate risk management strategy. Interest rate swaps involve the receipt of variable rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium. Designated Hedges. In August 2011, our interest rate swap, with a notional amount of $16.6 million, matured and settled. As a result of the settlement, we did not have any designated hedges as of September 30, 2011. The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive income or loss and is subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. During the three and nine months ended September 30, 2011 and 2010, such derivatives were used to hedge the variable cash flows associated with existing variable rate debt. The ineffective portion of the change in fair value of the derivatives, if any, is recognized directly in earnings. No portion of designated hedges was ineffective during the three or nine months ended September 30, 2011 and 2010. Non-designated Hedges. Derivatives not designated as hedges are not entered into for speculative purposes and are used to manage our exposure to interest rate movements and other identified risks. Non-designated hedges are either specifically non-designated by management or do not meet strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings in other income or other expense. In connection with the repayment of the $500 million term loan on June 6, 2011, we discontinued the hedging relationship on a $500 million interest rate swap used as a cash flow hedge as of May 31, 2011. Upon repayment of the loan, which eliminated the probable future variable monthly interest payments that were being hedged, we recognized a non-cash charge of approximately $29.8 million which included the accelerated reclassification of amounts previously recorded in accumulated other comprehensive loss related to this swap. Subsequent changes in the market value of the interest rate swap, which matures in October 2012, will be recorded directly in earnings over the remaining life of the swap in interest and other income (loss). Due to, among other matters, the relatively short remaining life of the swap (which matures in October 2012) and the low expectation of the swap becoming a significantly larger liability, management elected to leave this interest rate swap in place through its original maturity rather than cash settle the swap. As of September 30, 2011, we had the following outstanding interest rate derivatives which were not designated as hedges of interest rate risk:
Interest Rate Derivative |  | Number of Instruments |  |  | Notional Amount |
Interest Rate Cap |  |  | 1 |  |  | $ | 175.0 million |
Interest Rate Swap |  |  | 1 |  |  | $ | 500.0 million |
The table below presents the fair value of our derivative financial instruments as well as their classification in the condensed consolidated balance sheets at September 30, 2011 and December 31, 2010 (in millions): Fair Values of Derivative Instruments
|  | Asset Derivatives |  |  | Liability Derivatives |
|  | September 30, 2011 |  |  | December 31, 2010 |  |  | September 30, 2011 |  |  | December 31, 2010 |
|  | Balance Sheet Location |  |  | Fair Value |  |  | Balance Sheet Location |  |  | Fair Value |  |  | Balance Sheet Location |  | Fair Value |  |  | Balance Sheet Location |  | Fair Value |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swaps |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other Liabilities |  | $ | — |  |  | Other Liabilities |  | $ | 36.9 |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swap |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other Liabilities |  | $ | 22.2 |  |  | Other Liabilities |  |  | N/A |
Interest Rate Cap |  |  | Other Assets |  |  | $ | 0.1 |  |  |  | Other Assets |  |  | $ | — |  |  |  |  |  |  |  |  |  |  |  |  |
The tables below present the effect of our derivative financial instruments on the condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2011 and 2010 (in millions): Effect of Derivative Instruments
Three Months Ended September 30, |
Derivatives in Cash |  | Amount of (Loss) Recognized in Other Comprehensive Income ("OCI") on Derivative (Effective Portion) |  |  | Location of Loss Reclassified from Accumulated OCI into Income |  |  | Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion) |  |  | Location of Loss Recognized in Income on Derivative (Discontinuation, Ineffective Portion and Amount Excluded from |  | Amount of (Loss) Recognized in Income on Derivative (Discontinuation, Ineffective Portion and Amount Excluded from Effectiveness Testing) |
Flow Hedging Relationships |  | 2011 |  |  | 2010 |  |  | (Effective Portion) |  |  | 2011 |  |  | 2010 |  |  | Effectiveness Testing) |  | 2011 |  |  | 2010 |
Interest Rate Swaps |  | $ | — |  |  | $ | (5.3 | ) |  |  | Interest expense |  |  | $ | 0.1 |  |  | $ | 5.8 |  |  | Loss on discontinuation of hedging relationship |  | $ | — |  |  |  | N/A |
Derivatives not designated as hedging instruments |  | Location of Gain/(Loss) Recognized in Income on |  | Amount of (Loss) Recognized in Income on Derivative |
| Derivative |  | 2011 |  |  | 2010 |
Interest Rate Cap |  | Other income/(loss) |  | $ | (0.1 | ) |  | $ | — |
Interest Rate Swap |  | Other income/(loss) |  |  | (0.1 | ) |  |  | N/A |
Nine Months Ended September 30, |
Derivatives in Cash |  | Amount of (Loss) Recognized in Other Comprehensive Income ("OCI") on Derivative (Effective Portion) |  |  | Location of Loss Reclassified from Accumulated OCI into Income |  |  | Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion) |  |  | Location of Loss Recognized in Income on Derivative (Discontinuation, Ineffective Portion and Amount Excluded from |  | Amount of (Loss) Recognized in Income on Derivative (Discontinuation, Ineffective Portion and Amount Excluded from Effectiveness Testing) |
Flow Hedging Relationships |  | 2011 |  |  | 2010 |  |  | (Effective Portion) |  |  | 2011 |  |  | 2010 |  |  | Effectiveness Testing) |  | 2011 |  |  | 2010 |
Interest Rate Swaps (1) |  | $ | (2.7 | ) |  | $ | (19.5 | ) |  |  | Interest expense |  |  | $ | 9.9 |  |  | $ | 17.5 |  |  | Loss on discontinuation of hedging relationship |  | $ | (29.8 | ) |  |  | N/A |
Derivatives not designated as hedging instruments |  | Location of Gain/(Loss) Recognized in Income on |  | Amount of (Loss) Recognized in Income on Derivative |
| Derivative |  | 2011 |  |  | 2010 |
Interest Rate Cap |  | Other income/(loss) |  | $ | (0.1 | ) |  | $ | — |
Interest Rate Swap |  | Other income/(loss) |  |  | (0.1 | ) |  |  | N/A |
(1) | The results include the interest rate swap gain (loss) prior to discontinuation in May 2011.
Credit-risk-related Contingent Features. Derivative financial investments expose us to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements. We believe we minimize our credit risk on these transactions by transacting with major creditworthy financial institutions. As part of our on-going control procedures, we monitor the credit ratings of counterparties and our exposure to any single entity, which we believe minimizes credit risk concentration. Our agreements with each of our derivative counterparties contain provisions which provide the counterparty the right to declare a default on our derivative obligations if we are in default on any of our indebtedness, subject to certain thresholds. For all instances, these provisions include a default even if there is no acceleration of the indebtedness. Our agreements with each of our derivative counterparties also provide if we consolidate with, merge with or into, or transfer all or substantially all our assets to another entity and the creditworthiness of the resulting, surviving, or transferee entity is materially weaker than ours, the counterparty has the right to terminate the derivative obligations. At September 30, 2011, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk (the "termination value"), related to these agreements was approximately $23.8 million. As of September 30, 2011, we had not posted any collateral related to these agreements. If we were in breach of any of these provisions at September 30, 2011, or terminated these agreements, we would have been required to settle our obligations at their aggregate termination value of approximately $23.8 million.

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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