Derivative Instruments

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

The Company's objective in using derivative instruments is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate swaps as a primary part of its cash flow hedging strategy. The Company's interest rate swaps utilized as cash flow hedges involve the receipt of variable–rate payments in exchange for fixed–rate payments over the life of the agreements without exchange of the underlying notional amount. The Company does not use derivative financial instruments for trading or speculative purposes. The Company carries derivative instruments on the Condensed Consolidated Balance Sheets at fair value.

The table below presents the fair value of the Company's derivative financial instruments, exclusive of any accrued interest, as well as their classification on the Condensed Consolidated Balance Sheets (amounts in thousands):

	Balance sheet classification	Fair value
		September 30, 2014		December 31, 2013
Derivatives designated as hedging instruments:
Interest rate swap	Other accrued liabilities – current	$	6,286	$	—
Interest rate swap	Interest rate swaps and other  long–term liabilities, net	3,754		13,030

The Company recognizes changes in the fair value of derivative instruments each period as described below in the Cash Flow Hedges and Non-Designated Hedges sections.

As of September 30, 2014, the Company had not posted any collateral related to its interest rate swap agreements; however, the Company's obligations under the swaps are subject to the security and guarantee arrangements applicable to the related credit agreements. The swap agreements contain cross-default provisions under which the Company could be declared in default on its obligations under such agreements if the Company is in default under the credit facility, and could be required to settle the swap obligations by paying the termination value. As of September 30, 2014, the termination value of the interest rate swaps, including accrued interest, was a net liability of $11.1 million.

Cash Flow Hedges

As of September 30, 2014, the Company had two outstanding interest rate swaps which effectively convert $1.0 billion of its variable interest rate debt to a fixed rate of approximately 5.3%. In accordance with the accounting guidance for derivatives and hedging, the Company has designated the full notional amount of both of its outstanding swaps as cash flow hedges of interest rate risk. Under the terms of the swap agreements, the Company pays fixed rates ranging from 1.77% to 2.13% and receives variable rates based on one-month LIBOR (subject to a minimum of 1.00%).

The effective portion of the gains or losses on the Company's derivative instruments designated in hedging relationships is reported as a component of other comprehensive income (loss) until the interest payments being hedged are recorded as interest expense, at which time the amounts in other comprehensive income (loss) are reclassified as an adjustment to interest expense. The Company's two outstanding interest rate swaps that are designated in hedging relationships had fair values other than zero at the time they were designated, resulting in ineffectiveness. Gains or losses on the ineffective portion of the Company's derivative instruments are recorded in the period in which they occur as a component of change in fair value of derivative instruments in the Condensed Consolidated Statements of Operations.

The table below presents the gains (losses) on derivative financial instruments included in the Company's condensed consolidated financial statements for the three and nine months ended September 30, 2014 and 2013, respectively (amounts in thousands):

Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) on Derivatives Recognized in Other Comprehensive Income (Effective Portion)					Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)						Location of Loss on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain (Loss) on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Three Months Ended September 30,						Three Months Ended September 30,							Three Months Ended September 30,
	2014		2013				2014			2013				2014		2013
Interest rate swaps	$	1,076	$	(4,468	)	Interest expense, net	$	(3,213	)	$	(3,346	)	Change in fair value of derivative instruments	$	71	$	(43	)

Derivatives in Cash Flow Hedging Relationships	Amount of (Loss) Gain on Derivatives Recognized in Other Comprehensive Income (Effective Portion)					Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)						Location of Loss on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Loss on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Nine Months Ended September 30,						Nine Months Ended September 30,							Nine Months Ended September 30,
	2014			2013			2014			2013				2014			2013
Interest rate swaps	$	(5,181	)	$	1,125	Interest expense, net	$	(9,720	)	$	(9,821	)	Change in fair value of derivative instruments	$	(2	)	$	(77	)

Losses reclassified from accumulated other comprehensive loss into interest expense, net include reclassifications of deferred losses related to discontinued cash flow hedging relationships. Approximately $10.2 million of deferred losses on interest rate swaps is expected to be reclassified from accumulated other comprehensive loss into earnings during the next twelve months. This amount includes the amortization of previously deferred losses related to discontinued cash flow hedging relationships.

Non-Designated Hedges

From time to time, the Company holds interest rate swaps that are not designated in hedging relationships. Any non-designated interest rate swaps are not speculative and are used to manage the Company's exposure to interest rate movements, but do not meet the hedge accounting requirements. The Company records changes in the fair value of any interest rate swaps not designated in hedging relationships in the period in which they occur as a component of change in fair value of derivative instruments in the Condensed Consolidated Statements of Operations. Prior to the March 2013 refinancing transactions, a portion of one of the Company's interest rate swaps was not designated in a hedging relationship.

The table below presents the effect of the Company's derivative financial instruments not designated in hedging relationships on the Condensed Consolidated Statements of Operations (amounts in thousands):

		Amount of Loss on Derivative Instruments  Recognized in Income
		Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives Not Designated as Hedging Instruments	Location of Loss on Derivative Instruments Recognized in Income	2014		2013		2014		2013
Interest rate swaps	Change in fair value of derivative instruments	$	—	$	—	$	—	$	(204	)