Note 6 - Derivative Instruments

3 Months Ended

Mar. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 6.              Derivative Instruments

We engage in activities that expose us to market risks, including the effects of changes in fuel prices.  Financial exposures are evaluated as an integral part of our risk management program, which seeks, from time-to-time, to reduce the potentially adverse effects that the volatility of fuel markets may have on operating results.  In an effort to seek to reduce the variability of the ultimate cash flows associated with fluctuations in diesel fuel prices, we periodically enter into various derivative instruments, including forward futures swap contracts.  As diesel fuel is not a traded commodity on the futures market, heating oil is used as a substitute for diesel fuel as prices for both generally move in similar directions.  Under these contracts, we pay a fixed rate per gallon of heating oil and receive the monthly average price of New York heating oil per the NYMEX ("New York Mercantile Exchange"). The retrospective and prospective regression analyses provided that changes in the prices of diesel fuel and heating oil were deemed to be highly effective based on the relevant authoritative guidance. We do not engage in speculative transactions, nor do we hold or issue financial instruments for trading purposes.

We recognize all derivative instruments at fair value on our consolidated condensed balance sheets.  Our derivative instruments are designated as cash flow hedges, thus the effective portion of the gain or loss on the derivatives is reported as a component of accumulated other comprehensive income and will be reclassified into earnings in the same period during which the hedged transaction affects earnings.  The effective portion of the derivative represents the change in fair value of the hedge that offsets the change in fair value of the hedged item.  To the extent the change in the fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is immediately recognized in our consolidated condensed statements of operations.

At March 31, 2012, we had forward futures swap contracts on approximately 8.3 million gallons for the remainder of 2012 or approximately 18.7% of our projected remaining 2012 fuel requirements.

During the first quarter of 2012, we sold certain of our contracts related to the forecasted purchase of diesel fuel in the second quarter of 2012 to lock-in the related gains. The remaining gains totaling approximately $0.4 million represent additional hedges of 1.3 million gallons for 2012, or approximately 2.9% percent of our projected remaining 2012 fuel requirements.

The gains on the contracts liquidated in the first quarter of  2012 along with the fair value of the contracts that were in effect at March 31, 2012, which had a fair value of approximately $2.9 million and are included in other assets in the consolidated condensed balance sheet, are included in accumulated other comprehensive income, net of tax.  Additionally, $0.8 million and $0.5 million were reclassified from accumulated other comprehensive income into our results from operations for the three months ended March 31, 2012 and 2011, respectively, related to gains on contracts that expired. In addition to the amounts reclassified into our results of operations for the three months ended March 31, 2012 as reductions in fuel expense; we recorded $0.2 million of ineffectiveness on the contracts that existed at March 31, 2012.  The ineffectiveness was calculated using the cumulative dollar offset method as an estimate of the difference in the expected cash flows of the heating oil futures contracts compared to the changes in the all-in cash outflows required for the diesel fuel purchases.

Based on the amounts in accumulated other comprehensive income as of  March 31, 2012 and the expected timing of the purchases of the diesel hedged, we expect to reclassify $2.1 million of gains on derivative instruments from accumulated other comprehensive income into our results from operations during the next twelve months due to the actual diesel fuel purchases.  The amounts actually realized will be dependent on the fair values as of the date of settlement.

We perform both a prospective and retrospective assessment of the effectiveness of our hedge contracts at inception and quarterly, including assessing the possibility of counterparty default.  If we determine that a derivative is no longer expected to be highly effective, we discontinue hedge accounting prospectively and recognize subsequent changes in the fair value of the hedge in earnings.  As a result of our effectiveness assessment at inception and at March 31, 2012, we believe our hedge contracts have been and will continue to be highly effective in offsetting changes in cash flows attributable to the hedged risk.

Outstanding financial derivative instruments expose us to credit loss in the event of nonperformance by the counterparties to the agreements. We do not expect any of the counterparties to fail to meet their obligations.  Our credit exposure related to these financial instruments is represented by the fair value of contracts reported as assets.  To manage credit risk, we review each counterparty's audited financial statements and credit ratings and obtain references.