Note 6—Derivative Instruments

Derivative Instruments – Interest Rate Swap Agreements

We use interest rate swaps to manage the mix of our debt between fixed and variable rate instruments. As of June 30, 2011, we have entered into eight interest rate swap agreements for notional amounts totaling $5,750.0 million. The difference to be paid or received under the terms of the interest rate swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense for the related debt. Changes in the variable interest rates to be paid or received pursuant to the terms of the interest rate swap agreements will have a corresponding effect on future cash flows. The major terms of the interest rate swap agreements as of June 30, 2011 are as follows:


Effective Date	Notional Amount (in millions)		Fixed Rate Paid			Variable Rate Received as of June 30, 2011			Next Reset Date		Maturity Date
April 25, 2011	$	250.0		1.351	%		0.186	%		July 25, 2011		January 25, 2015
April 25, 2011		250.0		1.347	%		0.186	%		July 25, 2011		January 25, 2015
April 25, 2011		250.0		1.350	%		0.186	%		July 25, 2011		January 25, 2015
January 25, 2011		1,000.0		3.233	%		0.274	%		July 25, 2011		January 25, 2015
April 25, 2011		1,000.0		3.315	%		0.274	%		July 25, 2011		January 25, 2015
January 25, 2011		1,000.0		3.915	%		0.274	%		July 25, 2011		January 25, 2015
April 25, 2011		1,000.0		3.385	%		0.274	%		July 25, 2011		January 25, 2015
January 25, 2011		1,000.0		3.935	%		0.274	%		July 25, 2011		January 25, 2015

The variable rate on our interest rate swap agreements did not materially change as a result of the July 25, 2011 reset.

During the second quarter of 2011, the Company completed transactions to amend and extend certain swap contracts. A $1,000.0 million swap was modified to change the fixed payment rate from 4.172 percent and the maturity date from April 25, 2012. Two $2,000.0 million swaps were split into four $1,000.0 million tranches. The terms were modified to change the fixed payment rates from 4.276 percent and 4.263 percent and the maturity dates from April 25, 2013. The amended payment rates and maturity dates are shown in the table above.

In connection with the transactions to amend and extend the swap contracts, we removed the cash flow hedging designation for those swap agreements, freezing the amount of deferred losses recorded in Accumulated Other Comprehensive Loss ("AOCL"). We are amortizing deferred losses from the amend and extend transactions and other amounts previously frozen in AOCL into income over the original remaining term of the hedged forecasted transactions that are still considered to be probable of occurring. For the quarter and six months ended June 30, 2011, we amortized $14.3 million and $16.4 million, respectively, out of AOCL to interest expense. We will amortize an additional $79.0 million out of AOCL to interest expense over the next twelve months.

During the second quarter of 2011, we re-designated $4,310.1 million of the amended swap contracts as cash flow hedging instruments. To qualify for cash flow hedge accounting, the total designated swap amounts must match the critical terms such as notional amounts, benchmark interest rates and payment dates of the corresponding debt. At June 30, 2011, $5,060.1 million of our total interest rate swap agreements notional amount of $5,750.0 million are designated as hedging instruments for accounting purposes. Any future changes in fair value of the portion of the interest rate swap agreement not designated as a hedging instrument will be recognized in interest expense during the period in which the changes in value occur.

Derivative Instruments – Interest Rate Cap Agreements

On January 28, 2008, we entered into an interest rate cap agreement to partially hedge the risk of future increases in the variable rate of the CMBS Financing. The CMBS interest rate cap agreement, which was effective January 28, 2008 and terminates February 13, 2013, is for a notional amount of $6,500.0 million at a LIBOR cap rate of 4.5 percent. The CMBS interest rate cap was designated as a cash flow hedging instrument for accounting purposes on May 1, 2008.

In 2009, we began purchasing and extinguishing portions of the CMBS Financing. The hedging relationship between the CMBS Financing and the interest rate cap remained effective subsequent to each debt extinguishment. In connection with the extinguishments, we reclassified deferred losses out of AOCL and into interest expense associated with hedges for which the forecasted future transactions are no longer probable of occurring. The following table summarizes the face value of debt extinguishments and the amount of deferred losses reclassified out of AOCL (in millions):


Extinguishment Date	Debt Extinguished		Deferred Losses Reclassified
November 30, 2009	$	948.8	$	12.1
June 7, 2010		46.6		0.8
September 1, 2010		123.8		1.5
December 13, 2010		191.3		3.3
March 11, 2011		108.1		1.4
April 1, 2011		50.0		0.5

On January 31, 2010, we removed the cash flow hedge designation for the $6,500.0 million interest rate cap, freezing the amount of deferred losses recorded in AOCL associated with the interest rate cap. Beginning February 1, 2010, we began amortizing deferred losses frozen in AOCL into income over the original remaining term of the hedge forecasted transactions that are still probable of occurring. For the quarter and six months ended June 30, 2011, we recorded $5.2 million and $10.4 million, respectively, as an increase to interest expense. We will record an additional $20.9 million as an increase to interest expense and AOCL over the next twelve months, all related to deferred losses on the interest rate cap.

On January 31, 2010, we re-designated $4,650.2 million of the interest rate cap as a cash flow hedging instrument for accounting purposes. Any future changes in fair value of the portion of the interest rate cap not designated as a hedging instrument will be recognized in interest expense during the period in which the changes in value occur.

On April 5, 2010, as required under the the PHW Las Vegas Amended and Restated Loan Agreement, we entered into an interest rate cap agreement to partially hedge the risk of future increases in the variable interest rate of the PHW Las Vegas senior secured loan. The interest rate cap agreement is for a notional amount of $554.3 million at a LIBOR cap rate of 5.0 percent, and matures on December 9, 2011. To give proper consideration to the prepayment requirements of the PHW Las Vegas senior secured loan, we designated $525.0 million of the $554.3 million notional amount of the interest rate cap as a cash flow hedging instrument for accounting purposes. On May 1, 2011, we removed the cash flow hedging designation for the interest rate cap agreement. Any subsequent change in fair value is recognized in interest expense during the period in which the change in value occurs.

Derivative Instruments – Impact on Financial Statements

The following table represents the fair values of derivative instruments in the Consolidated Condensed Balance Sheets as of June 30, 2011 and December 31, 2010:


	Asset Derivatives						Liability Derivatives
	June 30, 2011			December 31, 2010			June 30, 2011				December 31, 2010
(In millions)	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		$	—		$	—	Accrued expenses	$	—		Accrued expenses	$	(21.6	)
Interest rate swaps	Deferred charges and other		—	Deferred charges and other		11.6	Deferred credits and other		(341.5	)	Deferred credits and other		(305.5	)
Interest rate cap	Deferred charges and other		0.5	Deferred charges and other		3.7			—				—

Subtotal			0.5			15.3			(341.5	)			(327.1	)
Derivatives not designated as hedging instruments
Interest rate swaps			—			—	Deferred credits and other		(13.4	)	Deferred credits and other		(32.2	)
Interest rate cap	Deferred charges and other		0.2	Deferred charges and other		1.5			—				—

Subtotal			0.2			1.5			(13.4	)			(32.2	)

Total Derivatives		$	0.7		$	16.8		$	(354.9	)		$	(359.3	)

The following table represents the effect of derivative instruments in the Consolidated Condensed Statements of Operations for the quarters ended June 30, 2011 and 2010 for amounts transferred into or out of AOCL:


(In millions)	Amount of (Gain) or Loss Recognized in AOCL (Effective Portion)				Location of (Gain) or Loss Reclassified From AOCL Into Income (Effective Portion)		Amount of (Gain) or Loss Reclassified from AOCL into Income (Effective Portion)				Location of (Gain) or Loss Recognized in Income (Ineffective Portion)		Amount of (Gain) or Loss Recognized in Income (Ineffective Portion)
Derivatives designated as hedging instruments	Quarter Ended June 30, 2011		Quarter Ended June 30, 2010				Quarter Ended June 30, 2011		Quarter Ended June 30, 2010				Quarter Ended June 30, 2011		Quarter Ended June 30, 2010
Interest rate contracts	$	45.8	$	78.8		Interest expense	$	9.2	$	8.4		Interest expense	$	14.2	$	(59.3	)

(In millions)													Amount of (Gain) or Loss Recognized in Income
Derivatives not designated as hedging instruments											Location of (Gain) or Loss Recognized in Income		Quarter Ended June 30, 2011		Quarter Ended June 30, 2010
Interest rate contracts												Interest expense	$	8.9	$	4.9

The following table represents the effect of derivative instruments in the Consolidated Condensed Statements of Operations for the six months ended June 30, 2011 and 2010 for amounts transferred into or out of AOCL:


(In millions)	Amount of (Gain) or Loss Recognized in AOCL (Effective Portion)				Location of (Gain) or Loss Reclassified From AOCL Into Income (Effective Portion)		Amount of (Gain) or Loss Reclassified from AOCL into Income (Effective Portion)				Location of (Gain) or Loss Recognized in Income (Ineffective Portion)		Amount of (Gain) or Loss Recognized in Income (Ineffective Portion)
Derivatives designated as hedging instruments	Six Months Ended June 30, 2011		Six Months Ended June 30, 2010				Six Months Ended June 30, 2011		Six Months Ended June 30, 2010				Six Months Ended June 30, 2011		Six Months Ended June 30, 2010
Interest rate contracts	$	1.8	$	123.9		Interest expense	$	19.3	$	14.3		Interest expense	$	4.4	$	(48.7	)

(In millions)													Amount of (Gain) or Loss Recognized in Income
Derivatives not designated as hedging instruments											Location of (Gain) or Loss Recognized in Income		Six Months Ended June 30, 2011		Six Months Ended June 30, 2010
Interest rate contracts												Interest expense	$	5.6	$	9.8

In addition to the impact on interest expense from amounts reclassified from AOCL, the difference to be paid or received under the terms of the interest rate swap agreements is recognized as interest expense and is paid quarterly. This cash settlement portion of the interest rate swap agreements increased interest expense for the quarters ended June 30, 2011 and 2010 by approximately $50.8 million and $68.0 million, respectively. This cash settlement portion of the interest rate swap agreements increased interest expense for the six months ended June 30, 2011 and 2010 by approximately $117.3 million and $134.5 million, respectively.

A change in interest rates on variable-rate debt will impact our financial results. For example, assuming a constant outstanding balance for our variable-rate debt, excluding the $5,060.1 million of variable-rate debt for which our interest rate swap agreements are designated as hedging instruments for accounting purposes, for the next twelve months, a hypothetical 1.0 percent increase in corresponding interest rates would increase interest expense for the twelve months following June 30, 2011 by approximately $71.7 million. At June 30, 2011, our weighted average USD LIBOR rate for our variable rate debt was 0.203 percent. A hypothetical reduction of this rate to zero percent would decrease interest expense for the next twelve months by approximately $14.6 million. At June 30, 2011, our variable-rate debt, excluding the aforementioned $5,060.1 million of variable-rate debt hedged using interest rate swap agreements, represents approximately 31.3 percent of our total debt, while our fixed-rate debt is approximately 68.7 percent of our total debt.