Derivative Instruments And Hedging Activities

3 Months Ended

Mar. 31, 2012

Derivative Instruments and Hedges, Assets [Abstract]

Derivative Instruments And Hedging Activities

9. Derivative Financial 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. 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 months ended March 31, 2011, 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 months ended March 31, 2011. We did not have any designated hedges during the three months ended March 31, 2012.

Non-designated Hedges. Derivatives are not entered into for speculative purposes and are used to manage our exposure to interest rate movements and other identified risks. Our 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 interest and other income.

As of March 31, 2012, 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 March 31, 2012 and December 31, 2011 (in millions):

Fair Values of Derivative Instruments

Asset Derivatives

Liability Derivatives

March 31, 2012

December 31, 2011

March 31, 2012

December 31, 2011

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives not designated as hedging instruments

Interest Rate Swap

Other Liabilities

$

11.6

Other Liabilities

$

16.6

Interest Rate Cap

Other Assets

$

—

Other Assets

$

0.1

The tables below present the effect of our derivative financial instruments on the condensed consolidated statements of income and comprehensive income for the three months ended March 31, 2012 and 2011 (in millions):

Effect of Derivative Instruments

Three Months Ended
March 31,
	Unrealized (Loss) Recognized in Other Comprehensive  Income (“OCI”) on  Derivative (Effective Portion)					Location of Loss Reclassified from Accumulated OCI into Income(Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)				Location of Loss Recognized in  Statements of Income (Ineffective  Portion and Amount  Excluded from Effectiveness Testing)	Amount of Loss Recognized in Statements of Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Derivatives in Cash Flow Hedging Relationships	2012		2011				2012		2011			2012		2011
Interest Rate Swaps (1)	$	—	$	(0.5	)	Interest expense	$	—	$	5.8	N/A	$	—	$	—

Derivatives not designated as hedging instruments	Location of Gain/(Loss) Recognized in Statements of Income	Amount of (Loss) Recognized in Statements of Income
		2012			2011
Interest Rate Cap	Other income/(loss)	$	—		$	—
Interest Rate Swap	Other income/(loss)	$	(0.7	)	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 March 31, 2012, 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 $13.3 million. As of March 31, 2012, we had not posted any collateral related to these agreements. If we were in breach of any of these provisions at March 31, 2012, or terminated these agreements, we would have been required to settle our obligations at their aggregate termination value of approximately $13.3 million.