Derivative Financial Instruments

9 Months Ended

Sep. 30, 2015

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

9.DERIVATIVE FINANCIAL INSTRUMENTS

The Company recognizes all derivatives on the Condensed Consolidated Balance Sheet at fair value.  All of the Company’s derivatives have been designated as cash flow hedges; therefore, the effective portion of the changes in the fair value of derivatives will be recognized in accumulated other comprehensive loss (“AOCL”) until the hedged item is recognized in earnings.  The ineffective portion of the changes in the fair value of derivatives will be immediately recognized in earnings.  The Company classifies cash inflows and outflows from derivatives within operating activities in the Condensed Consolidated Statements of Cash Flows. 

One of the Company’s objectives for utilizing derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in the variable interest rates of certain borrowings issued under its prior credit agreement and credit agreement.  The Company’s strategy to achieve that objective involves entering into interest rate swaps.  The interest rate swaps outstanding at September 30, 2015 were specifically designated to the Company’s credit agreement and accounted for as cash flow hedges. 

At September 30, 2015, the Company’s derivative instruments included six interest rate swap agreements as follows: 

Date Entered	Notional Amount		Fixed Interest Rate Paid*	Variable Interest Rate Received	Effective Date	Expiration Date
December 2011	$	175,000	1.600%	1-month LIBOR	February 2014	February 2017
April 2014	$	100,000	1.800%	1-month LIBOR	July 2014	July 2019
May 2014	$	50,000	2.344%	1-month LIBOR	October 2015	October 2020
May 2014	$	25,000	2.326%	1-month LIBOR	October 2015	October 2020
May 2014	$	50,000	2.350%	1-month LIBOR	October 2015	October 2020
May 2014	$	50,000	2.350%	1-month LIBOR	October 2015	October 2020

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*  Plus applicable margin.

Another of the Company’s objectives for utilizing derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in the price of diesel fuel.  The Company’s strategy to achieve that objective involves periodically entering into fuel hedges that are specifically designated to certain forecasted diesel fuel purchases and accounted for as cash flow hedges. 

At September 30, 2015, the Company’s derivative instruments included three fuel hedge agreements as follows:   

Date Entered	Notional Amount (in gallons per month)	Diesel Rate Paid Fixed (per gallon)	Diesel Rate Received Variable	Effective Date	Expiration Date
June 2012	300,000	$ 3.600	DOE Diesel Fuel Index*	January 2014	December 2015
May 2015	300,000	$ 3.280	DOE Diesel Fuel Index*	January 2016	December 2017
May 2015	200,000	$ 3.275	DOE Diesel Fuel Index*	January 2016	December 2017

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*  If the national U.S. on-highway average price for a gallon of diesel fuel (“average price”), as published by the Department of Energy (“DOE”), exceeds the contract price per gallon, the Company receives the difference between the average price and the contract price (multiplied by the notional number of gallons) from the counterparty.  If the average price is less than the contract price per gallon, the Company pays the difference to the counterparty. 

The fair values of derivative instruments designated as cash flow hedges as of September 30, 2015, were as follows: 

Derivatives Designated as Cash	Asset Derivatives			Liability Derivatives
Flow Hedges	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value
Interest rate swaps		$	-	Accrued liabilities(a)	$	(6,882)
				Other long-term liabilities		(7,601)
Fuel hedges			-	Accrued liabilities(b)		(3,638)
				Other long-term liabilities		(3,245)
Total derivatives designated as cash flow hedges		$	-		$	(21,366)

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(a) Represents the estimated amount of the existing unrealized losses on interest rate swaps as of September 30, 2015 (based on the interest rate yield curve at that date), included in AOCL expected to be reclassified into pre-tax earnings within the next 12 months.  The actual amounts reclassified into earnings are dependent on future movements in interest rates. 

(b)Represents the estimated amount of the existing unrealized losses on fuel hedges as of September 30, 2015 (based on the forward DOE diesel fuel index curve at that date), included in AOCL expected to be reclassified into pre-tax earnings within the next 12 months.  The actual amounts reclassified into earnings are dependent on future movements in diesel fuel prices.

The fair values of derivative instruments designated as cash flow hedges as of December 31, 2014, were as follows: 

Derivatives Designated as Cash	Asset Derivatives			Liability Derivatives
Flow Hedges	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value
Interest rate swaps	Other assets, net	$	250	Accrued liabilities	$	(4,044)
				Other long-term liabilities		(3,300)
Fuel hedges			-	Accrued liabilities		(1,979)
Total derivatives designated as cash flow hedges		$	250		$	(9,323)

The following table summarizes the impact of the Company’s cash flow hedges on the results of operations, comprehensive income (loss) and AOCL for the three and nine months ended September 30, 2015 and 2014: 

Derivatives Designated as Cash Flow Hedges	Amount of Gain or (Loss) Recognized as AOCL on Derivatives, Net of Tax (Effective Portion)(a)				Statement of Net Income (Loss) Classification	Amount of (Gain) or Loss Reclassified from AOCL into Earnings, Net of Tax (Effective Portion) (b),(c)
	Three Months Ended September 30,					Three Months Ended September 30,
	2015		2014			2015		2014
Interest rate swaps	$	(3,786)	$	597	Interest expense	$	645	$	809
Fuel hedges		(3,039)		(735)	Cost of operations		541		(132)
Total	$	(6,825)	$	(138)		$	1,186	$	677

Derivatives Designated as Cash Flow Hedges	Amount of Gain or (Loss) Recognized as AOCL on Derivatives, Net of Tax (Effective Portion)(a)				Statement of Net Income (Loss) Classification	Amount of (Gain) or Loss Reclassified from AOCL into Earnings, Net of Tax (Effective Portion) (b),(c)
	Nine Months Ended September 30,					Nine Months Ended September 30,
	2015		2014			2015		2014
Interest rate swaps	$	(6,528)	$	(942)	Interest expense	$	1,929	$	2,014
Fuel hedges		(4,385)		(625)	Cost of operations		1,341		(518)
Total	$	(10,913)	$	(1,567)		$	3,270	$	1,496

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(a)In accordance with the derivatives and hedging guidance, the effective portions of the changes in fair values of interest rate swaps and fuel hedges have been recorded in equity as a component of AOCL.  As the critical terms of the interest rate swaps match the underlying debt being hedged, no ineffectiveness is recognized on these swaps and, therefore, all unrealized changes in fair value are recorded in AOCL.  Because changes in the actual price of diesel fuel and changes in the DOE index price do not offset exactly each reporting period, the Company assesses whether the fuel hedges are highly effective using the cumulative dollar offset approach. 

(b)Amounts reclassified from AOCL into earnings related to realized gains and losses on interest rate swaps are recognized when interest payments or receipts occur related to the swap contracts, which correspond to when interest payments are made on the Company’s hedged debt. 

(c)Amounts reclassified from AOCL into earnings related to realized gains and losses on the fuel hedges are recognized when settlement payments or receipts occur related to the hedge contracts, which correspond to when the underlying fuel is consumed. 

The Company measures and records ineffectiveness on the fuel hedges in Cost of operations in the Condensed Consolidated Statements of Net Income (Loss) on a monthly basis based on the difference between the DOE index price and the actual price of diesel fuel purchased, multiplied by the notional number of gallons on the contracts.  There was no significant ineffectiveness recognized on the fuel hedges during the nine months ended September 30, 2015 and 2014. 

See Note 13 for further discussion on the impact of the Company’s hedge accounting to its consolidated comprehensive income (loss) and AOCL.