DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

9 Months Ended

Sep. 30, 2012

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to global market risks, including risks from changes in FX rates and changes in interest rates. Accordingly, the Company uses derivatives in certain instances to manage the aforementioned financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for speculative purposes.

Interest Rate Swaps

In the fourth quarter of 2010, the Company entered into interest rate swaps with a total notional amount of $300 million to convert the fixed interest rate on the Series 2005-1 Notes to a floating interest rate based on the 3-month LIBOR. The purpose of this hedge was to mitigate the risk associated with changes in the fair value of the Series 2005-1 Notes, thus the Company has designated these swaps as fair value hedges. The fair value of the swaps is reported in other assets at September 30, 2012 and December 31, 2011 in the Company’s consolidated balance sheets with a corresponding adjustment to the carrying value of the Series 2005-1 Notes. The changes in the fair value of the hedges and the underlying hedged item generally offset and the net cash settlements on the swaps are recorded each period within interest expense, net, in the Company’s consolidated statement of operations.

In May 2008, the Company entered into interest rate swaps with a total notional amount of $150 million to protect against fluctuations in the LIBOR-based variable interest rate on the 2008 Term Loan, further described in Note 13. These interest rate swaps are designated as cash flow hedges. Accordingly, changes in the fair value of these swaps are recorded to other comprehensive income or loss, to the extent that the hedge is effective, and such amounts are reclassified to earnings in the same period during which the hedged transaction affects income. The fair value of the swaps is reported in other liabilities in the Company’s consolidated balance sheets at September 30, 2012 and December 31, 2011.

Foreign Exchange Forwards and Options

The Company engaged in hedging activities to protect against FX risks from forecasted billings and related revenue denominated in the euro and the GBP. FX options and forward exchange contracts were utilized to hedge exposures related to changes in FX rates. As of December 31, 2011, these FX options and forward exchange contracts have matured and all realized gains and losses have been reclassified from AOCI into earnings. FX options and forward exchange contracts were designated as cash flow hedges.

The Company also enters into foreign exchange forwards to mitigate the change in fair value on certain assets and liabilities denominated in currencies other than the entity’s functional currency. These forward contracts are not designated as hedging instruments under the applicable sections of Topic 815 of the ASC. Accordingly, changes in the fair value of these contracts are recognized immediately in other non-operating (expense) income, net in the Company’s consolidated statements of operations along with the FX gain or loss recognized on the assets and liabilities denominated in a currency other than the entity’s functional currency. These contracts have expiration dates at various times through December 2012.

The following table summarizes the notional amounts of the Company’s outstanding foreign exchange forwards:

	September 30,		December 31,
	2012		2011
Notional amount of Currency Pair:
Contracts to purchase USD with euros	$	34.6	$	27.5
Contracts to sell USD for euros	$	47.1	$	47.7
Contracts to purchase USD with GBP	$	4.2	$	2.4
Contracts to sell USD for GBP	$	4.2	$	17.6
Contracts to purchase USD with other foreign currencies	$	8.7	$	3.2
Contracts to sell USD for other foreign currencies	$	6.5	$	7.6
Contracts to purchase euros with other foreign currencies	€	20.7	€	13.6
Contracts to purchase euros with GBP	€	8.7	€	1.6
Contracts to sell euros for GBP	€	9.9	€	7.2

Net Investment Hedges

The Company enters into foreign currency forward contracts to hedge the exposure related to non-U.S. dollar net investments in certain foreign subsidiaries against adverse changes in foreign exchange rates. These forward contracts are designated as hedging instruments under the applicable sections of Topic 815 of the ASC. Hedge effectiveness is assessed based on the overall changes in the fair value of the forward contracts on a pre-tax basis. Any change in the fair value of these hedges that is the result of ineffectiveness would be recognized immediately in other non-operating (expense) income in the Company’s consolidated statement of operations. As of September 30, 2012 the Company does not expect to incur any ineffectiveness. Accordingly, all gains and losses on these derivatives designated as net investment hedges are recognized in the currency translation adjustment component of AOCI. These outstanding contracts expire on December 3, 2012.

The following table summarizes the notional amounts of the Company’s outstanding foreign exchange forward contracts that are designated as net investment hedges:

	September 30,		December 31,
	2012		2011
Notional amount of Currency Pair:
Contracts to sell euros for USD	€	50.0		N/A

The table below shows the classification between assets and liabilities on the Company’s consolidated balance sheets for the fair value of the derivative instruments:

	Fair Value of Derivative Instruments
	Balance Sheet Location	September 30, 2012		December 31, 2011
Assets:
Derivatives designated as accounting hedges:
Interest rate swaps	Other assets	$	18.4	$	11.5
Total derivatives designated as accounting hedges			18.4		11.5
Derivatives not designated as accounting hedges:
FX forwards on certain assets and liabilities	Other current assets		2.0		1.1
Total		$	20.4	$	12.6
Liabilities:
Derivatives designated as accounting hedges:
Interest rate swaps	Accounts payable and accrued liabilities	$	1.5	$	4.5
FX forwards on net investment in certain foreign subsidiaries	Accounts payable and accrued liabilities		1.8		—
Total derivatives designated as accounting hedges			3.3		4.5
Derivatives not designated as accounting hedges:
FX forwards on certain assets and liabilities	Accounts payable and accrued liabilities		0.6		2.3
Total		$	3.9	$	6.8

The following table summarizes the net gain (loss) on the Company’s foreign exchange forwards which are not designated as hedging instruments as well as the gain (loss) on the interest rate swaps designated as fair value hedge:

		Amount of Gain (Loss) Recognized in consolidated statements of operations
		Three Months Ended					Nine Months Ended
		September 30,					September 30,
Derivatives designated as accounting hedges	Location on Income Statement	2012		2011			2012		2011
Interest rate swaps	Interest expense, net	$	0.9	$	1.0		$	2.6	$	3.1
Derivatives not designated as accounting hedges
Foreign exchange forwards	Other non-operating (expense) income	$	0.4	$	(3.1	)	$	—	$	(0.6	)

The following table provides information on gains/(losses) on the Company’s cash flow hedges:

Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in AOCI on Derivative (Effective Portion)						Location of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)						Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Three Months Ended							Three Months Ended							Three Months Ended
	September 30,							September 30,							September 30,
	2012			2011				2012			2011				2012		2011
FX options	$	—		$	—		Revenue	$	—		$	—		Revenue	$	—	$	—
Interest rate swaps		—			(0.1	)	Interest Expense		(0.6	)		(0.9	)	N/A		—		—
Total	$	—		$	(0.1	)		$	(0.6	)	$	(0.9	)		$	—	$	—
	Nine Months Ended							Nine Months Ended							Nine Months Ended
	September 30,							September 30,							September 30,
	2012			2011				2012			2011				2012		2011
FX options	$	—		$	—		Revenue	$	—		$	(0.2	)	Revenue	$	—	$	—
Interest rate swaps		(0.1	)		(0.5	)	Interest Expense		(1.9	)		(2.2	)	N/A		—		—
Total	$	(0.1	)	$	(0.5	)		$	(1.9	)	$	(2.4	)		$	—	$	—

All gains and losses on derivatives designated as cash flow hedges are initially recognized through AOCI. Realized gains and losses reported in AOCI are reclassified into earnings (into revenue for FX options and into interest expense, net for the interest rate swaps) as the underlying transaction is recognized.

The following table provides information on gains/(losses) on the Company’s net investment hedges:

Derivatives in Net Investment Hedging Relationships	Amount  of Gain/(Loss) Recognized in AOCI  on Derivative (Effective Portion)					Location of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)	Amount  of Gain/(Loss) Reclassified  from AOCI into Income (Effective Portion)				Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Three Months Ended						Three Months Ended					Three Months Ended
	September 30,						September 30,					September 30,
	2012			2011			2012		2011			2012		2011
FX forwards	$	0.1		$	—	N/A	$	—	$	—	N/A	$	—	$	—
Total	$	0.1		$	—		$	—	$	—		$	—	$	—
	Nine Months Ended						Nine Months Ended					Nine Months Ended
	September 30,						September 30,					September 30,
	2012			2011			2012		2011			2012		2011
FX forwards	$	(1.4	)	$	—	N/A	$	—	$	—	N/A	$	—	$	—
Total	$	(1.4	)	$	—		$	—	$	—		$	—	$	—

All gains and losses on derivatives designated as net investment hedges are recognized in the currency translation adjustment component of AOCI.

The cumulative amount of unrecognized hedge losses recorded in AOCI is as follows:

	Unrecognized Losses, net of tax
	September 30,			December 31,
	2012			2011
FX forwards on net investment hedges	$	(1.4	)	$	—
Interest rate swaps (1)		(1.2	)		(3.0	)
Total	$	(2.6	)	$	(3.0	)

⁽¹⁾  The unrecognized hedge losses relating to the cash flow hedges on the 2008 Term Loan are expected to be reclassified into earnings within the next twelve months as the underlying hedge ends with the full repayment of the Term Loan in the first half of 2013.