Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Risk Management Objective of Using Derivatives

We are exposed to certain risks arising from global economic conditions. We manage economic risks, including interest rate risk primarily through the use of derivative financial instruments to mitigate the potential impact of interest rate risk. All derivatives are carried at fair value on our consolidated balance sheets. We do not enter into speculative derivatives. Specifically, we enter into derivative financial instruments to manage exposures that arise from payment of future known and uncertain cash amounts related to our borrowings, the value of which are determined by LIBOR interest rates. We may net settle any of our derivative positions under agreements with our counterparty, when applicable.

Cash Flow Hedges of Interest Rate Risk via Interest Rate Caps

Our objective in using interest rate derivatives is to add certainty to interest expense amounts and to manage our exposure to interest rate movements, specifically to protect us from variability in cash flows attributable to changes in LIBOR interest rates. To accomplish this objective, we primarily use interest rate caps as part of our interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if LIBOR exceeds the strike rate in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During the year ended December 31, 2013, we entered into such derivatives to hedge the variable cash flows associated with existing variable-rate debt under our Credit Agreement beginning as of September 30, 2013. These instruments are designated for accounting purposes as cash flow hedges of benchmark interest rate risk related to our Credit Agreement. We assess effectiveness and the effective portion of changes in the fair value of derivatives designated and qualified as cash flow hedges for financial reporting purposes is recorded in “Accumulated other comprehensive loss” on our consolidated balance sheet and will be subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Any ineffective portion of the change in fair value of the derivatives would be recognized directly in earnings.

Interest Rate Caps

As of December 31, 2013, we had five outstanding interest rate caps with various termination dates and notional amounts, which we deemed to be effective for accounting purposes. The derivatives had a combined notional value of $600,000 thousand, all with an effective date of September 30, 2013 and with termination dates each September 30th beginning in 2014 and ending in 2018. Consistent with the terms of the Credit Agreement, the interest rate caps have a strike of 1% which matches the LIBOR floor of 1.0% on the debt. The premium is deferred and paid over the life of the instrument. The effective annual interest rate related to these interest rate caps was a fixed weighted average rate of approximately 4.9% (including applicable margin of 3.25% per the Credit Agreement) at December 31, 2013. These instruments are designated for accounting purposes as cash flow hedges of interest rate risk related to our Credit Agreement. Amounts reported in “Accumulated other comprehensive loss” on our consolidated balance sheet related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt under the Credit Agreement. Approximately 30% of our total outstanding debt at December 31, 2013 remains subject to variability in cash flows attributable to changes in LIBOR interest rates. During the next twelve months, we estimate that $4,002 thousand will be reclassified from “Accumulated other comprehensive loss” on our consolidated balance sheet at December 31, 2013 to interest expense.

Fair Value

As of the effective date, we designated the interest rate swap agreements as cash flow hedges. As cash flow hedges, unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The interest rate swap agreements are highly correlated to the changes in LIBOR interest rates. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion of such gains or losses will be recorded as a component of interest expense. As of December 31, 2013, we recorded $1,189 thousand (or $762 thousand, net of tax) as part of “Accumulated other comprehensive loss” on our consolidated balance sheet. Future realized gains and losses in connection with each required interest payment will be reclassified from Accumulated other comprehensive loss to interest expense.

We elected to use the income approach to value the derivatives, using observable Level 2 market expectations at each measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted) assuming that participants are motivated, but not compelled to transact. Level 2 inputs for the cap valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates, volatility and credit risk at commonly quoted intervals). Mid-market pricing is used as a practical expedient for fair value measurements. Key inputs for valuation models include the cash rates, futures rates, swap rates, credit rates and interest rate volatilities.  Reset rates, discount rates and volatilities are interpolated from these market inputs to calculate cash flows as well as to discount those future cash flows to present value at each measurement date. Refer to Note 7 for additional information regarding fair value measurements.

The fair value of our derivative instruments measured as outlined above as of December 31, 2013 was as follows:

($ amounts in thousands)

	December 31,			Quoted Prices		Significant Other Observable Inputs			Significant Other Unobservable Inputs
Description	2013			Level 1		Level 2			Level 3
ASSETS
Current Assets
Derivatives	$	—		$	—	$	—		$	—
	$	—		$	—	$	—		$	—
LIABILITIES
Current Liabilities
Derivatives	$	(1,189	)	$	—	$	(1,189	)	$	—
	$	(1,189	)	$	—	$	(1,189	)	$	—

The following table summarizes the fair value and presentation in our consolidated balance sheets for derivative instruments as of December 31, 2013 and 2012:

($ amounts in thousands)

	Asset Derivatives			Liability Derivatives
		December 31, 2013	December 31, 2012		December 31, 2013			December 31, 2012
	Balance Sheet Location	Fair Value	Fair Value	Balance Sheet Location	Fair Value			Fair Value
Derivatives designated as hedging instruments under ASC 815
Interest rate cap contracts		—	—	Accrued expenses and other current liabilities	$	(4,002	)	—
Interest rate cap contracts		—	—	Other Assets	2,813			—
Total derivatives designated as hedging instruments under ASC 815		—	—		$	(1,189	)	—
Total derivatives		—	—		$	(1,189	)	—

The following tables summarize our five interest cap agreements with a single counterparty and that each agreement represented a net liability for us and none of our interest cap agreements represented a net asset as of December 31, 2013:

($ amounts in thousands)

Offsetting of Derivative Liabilities
					As of December 31, 2013
											Gross Amounts Not Offset in the Statement of Financial Position
Description		Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Liabilities Presented in the Statement of Financial Position			Financial Instruments		Cash Collateral Pledged		Net Amount
Derivatives by counterparty
	Counterparty 1	$	(1,189	)	$	(2,813	)	$	(4,002	)	$	2,813	$	—	$	(1,189	)
Total		$	(1,189	)	$	(2,813	)	$	(4,002	)	$	2,813	$	—	$	(1,189	)

($ amounts in thousands)

Offsetting of Derivative Assets
				As of December 31, 2013
								Gross Amounts Not Offset in the Statement of Financial Position
Description		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets Presented in the Statement of Financial Position		Financial Instruments			Cash Collateral Pledged		Net Amount
Derivatives by counterparty
	Counterparty 1	$	—	$	2,813	$	2,813	$	(2,813	)	$	—	$	—
Total		$	—	$	2,813	$	2,813	$	(2,813	)	$	—	$	—

The following table summarizes information about the fair values of our derivative instruments on the consolidated statements of other comprehensive income (loss) for the year ended December 31, 2013:

Other Comprehensive Income (Loss) Rollforward:	Amount ($ thousands)
Beginning Balance Gain/(Loss) as of December 31, 2012	$	—
Amount Recognized in Other Comprehensive Income (Loss) on Derivative (Pre-tax)	(2,203		)
Amount Reclassified from Other Comprehensive Income (Loss) into Income (Loss)	1,014
Ending Balance Gain/(Loss) (Pre-tax) as of December 31, 2013	$	(1,189	)

The following table summarizes the effect and presentation of derivative instruments, including the effective portion or ineffective portion of our cash flow hedges, on the consolidated statements of operations for the periods ending December 31, 2013 and 2012:

($ amounts in thousands)

The Effect of Derivative Instruments on the Statement of Financial Performance
For the Year Ended December 31, 2013
Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative (Effective Portion)				Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss) (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Loss)  (Effective Portion)				Location of Gain or (Loss) Recognized in Income (Loss) on Derivative (Ineffective Portion )	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion )
	2013			2012		2013			2012		2013		2012
Interest rate cap contracts	$	(2,203	)	—	Interest Expense	$	(1,014	)	—	Interest Expense	$	—	—
Total	$	(2,203	)	—		$	(1,014	)	—		$	—	—