v2.4.0.6
Financial Instruments
 12 Months Ended
Dec. 31, 2011
Financial Instruments [Abstract]  
FINANCIAL INSTRUMENTS

15. FINANCIAL INSTRUMENTS

Fuel Hedges

We have entered into multiple swap agreements designated as cash flow hedges to mitigate some of our exposure related to changes in diesel fuel prices. The swaps qualified for, and were designated as, effective hedges of changes in the prices of forecasted diesel fuel purchases (fuel hedges).

The following fuel hedges were outstanding during 2011 and 2010:

 

                     

Inception Date

  

Commencement Date

  

Termination Date

   Notional Amount
(in Gallons per
Month)		   Contract Price
per Gallon		  

November 5, 2007

   January 5, 2009   December 30, 2013   60,000   $ 3.28  

March 17, 2008

   January 5, 2009   December 31, 2012   50,000     3.72  

March 17, 2008

   January 5, 2009   December 31, 2012   50,000     3.74  

September 22, 2008

   January 1, 2009   December 31, 2011   150,000     4.16 -4.17  

July 10, 2009

   January 1, 2011   December 31, 2011   100,000     3.05  

July 10, 2009

   January 1, 2012   December 31, 2012   100,000     3.20  

August 8, 2011

   July 1, 2012   December 31, 2012   500,000     3.84  

August 8, 2011

   January 1, 2013   December 31, 2013   500,000     3.83  

August 8, 2011

   January 1, 2014   December 31, 2014   500,000     3.82  

August 8, 2011

   July 2, 2012   December 31, 2012   500,000     3.84  

August 8, 2011

   January 7, 2013   December 30, 2013   500,000     3.82  

August 9, 2011

   July 1, 2012   December 31, 2012   250,000     3.80  

August 9, 2011

   January 1, 2013   December 31, 2013   250,000     3.83  

August 9, 2011

   January 1, 2014   December 31, 2014   250,000     3.82  

August 9, 2011

   January 6, 2014   December 29, 2014   500,000     3.83  

September 30, 2011

   January 6, 2014   December 29, 2014   250,000     3.69  

September 30, 2011

   January 7, 2013   December 30, 2013   250,000     3.70  

October 3, 2011

   January 5, 2015   December 28, 2015   250,000     3.68  

If the national U.S. on-highway average price for a gallon of diesel fuel (average price) as published by the Department of Energy exceeds the contract price per gallon, we receive the difference between the average price and the contract price (multiplied by the notional gallons) from the counter-party. If the national U.S. on-highway average price for a gallon of diesel fuel is less than the contract price per gallon, we pay the difference to the counter-party.

The fair values of our fuel hedges are determined using standard option valuation models with assumptions about commodity prices being based on those observed in underlying markets (Level 2 in the fair value hierarchy). The aggregated fair values of our outstanding fuel hedges at December 31, 2011 and 2010 were current assets of $1.6 million, and current liabilities of $4.7 million and $1.9 million, respectively, and have been recorded in other current assets and other accrued liabilities in our consolidated balance sheets, respectively.

 

The following table summarizes the impact of our fuel hedges on our results of operations and comprehensive income for the years ended December 31, 2011, 2010 and 2009:

 

                                                                                 

Derivatives

in Cash Flow

Hedging

Relationships

   Amount of
Gain or (Loss)
Recognized in OCI
on Derivatives
(Effective Portion)		    

Statement of

Income

Classification

   Amount of Realized
Gain or (Loss)		    

Location of

Gain (Loss)

Recognized in

Income on

Derivative

(Ineffective

Portion and

Amount

Excluded from

Effectiveness

Testing)

   Amount of Gain or
(Loss) Recognized
in Income on
Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness
Testing)		  
  2011     2010     2009       2011     2010     2009       2011     2010     2009  

Fuel hedges

   $ (1.7 )    $ 0.8     $ 6.1     Cost of operations   $ 0.9     $ (2.0 )    $ (7.3 )    Other income, net   $ -     $ -     $ 0.2  

The effective portions of the changes in fair values as of December 31, 2011 and 2010, net of tax, of $1.8 million and $0.2 million, respectively, have been recorded in stockholders’ equity as components of accumulated other comprehensive income.

Recycling Commodity Hedges

Our revenue from sale of recycling commodities is primarily from sales of old corrugated cardboard (OCC) and old newspaper (ONP). We use derivative instruments such as swaps and costless collars designated as cash flow hedges to manage our exposure to changes in prices of these commodities. We have entered into multiple agreements related to the forecasted OCC and ONP sales. The agreements qualified for, and were designated as, effective hedges of changes in the prices of certain forecasted recycling commodity sales (recycling commodity hedges).

The following commodity swaps were outstanding during 2011 and 2010:

 

                             

Inception Date

  

Commencement Date

   Termination Date  

Transaction
Hedged

   Notional
Amount
(in Short Tons
per Month)		     Contract Price
Per Short
Ton		  

December 8, 2009

   January 1, 2010   December 31, 2011   ONP     2,000     $ 76.00  

December 10, 2009

   January 1, 2010   December 31, 2011   OCC     2,000       82.00  

December 11, 2009

   January 1, 2010   December 31, 2011   OCC     2,000       82.00  

January 5, 2010

   January 1, 2010   December 31, 2011   ONP     2,000       84.00  

January 6, 2010

   January 1, 2010   December 31, 2011   OCC     1,000       90.00  

January 27, 2010

   February 1, 2010   January 31, 2012   OCC     1,000       90.00  

September 23, 2010

   January 1, 2011   December 31, 2011   ONP     1,000       95.00  

September 28, 2010

   January 1, 2011   December 31, 2011   ONP     1,000       95.00  

October 11, 2010

   January 1, 2011   December 31, 2012   OCC     1,500       115.00  

If the price per short ton of the hedging instrument (average price) as reported on the Official Board Market is less than the contract price per short ton, we receive the difference between the average price and the contract price (multiplied by the notional short tons) from the counter-party. If the price of the commodity exceeds the contract price per short ton, we pay the difference to the counter-party.

The fair values of our commodity swaps are determined using standard option valuation models with assumptions about commodity prices being based on those observed in underlying markets (Level 2 in the fair value hierarchy).

 

We entered into costless collar agreements on forecasted sales of up to 25,000 short tons of OCC and ONP a month. The agreements involve combining a purchased put option giving us the right to sell up to 25,000 short tons of OCC and ONP monthly at an established floor strike price with a written call option obligating us to deliver up to 25,000 short tons of OCC and ONP monthly at an established cap strike price. The puts and calls have the same settlement dates, are net settled in cash on such dates and have the same terms to expiration. The contemporaneous combination of options resulted in no net premium for us and represent costless collars. Under the agreements, no payments will be made or received by us, as long as the settlement price is between the floor price and cap price. However, if the settlement price is above the cap, we will be required to pay the counterparty an amount equal to the excess of the settlement price over the cap times the monthly volumes hedged. Also, if the settlement price is below the floor, the counterparty will be required to pay us the deficit of the settlement price below the floor times the monthly volumes hedged. The objective of these agreements is to reduce the variability of the cash flows of the forecasted sales of OCC and ONP between two designated strike prices.

The following costless collar hedges were outstanding at December 31, 2011 and 2010:

 

                                     

Inception Date

  

Commencement Date

   Termination Date  

Transaction
Hedged

   Notional
Amount
(in Short Tons
per Month)		     Floor
Strike Price
Per Short
Ton		     Cap
Strike Price
Per Short
Ton		  

December 8, 2010

   January 1, 2011   December 31, 2012   OCC     2,000     $ 80.00     $ 180.00  

December 8, 2010

   January 1, 2011   December 31, 2012   OCC     2,000       86.00       210.00  

December 8, 2010

   January 1, 2011   December 31, 2012   OCC     2,000       81.00       190.00  

December 8, 2010

   January 1, 2011   December 31, 2012   OCC     2,000       85.00       195.00  

December 8, 2010

   January 1, 2011   December 31, 2012   OCC     2,000       87.00       195.00  

January 19, 2011

   February 1, 2011   December 31, 2012   OCC     2,500       90.00       155.00  

January 19, 2011

   February 1, 2011   December 31, 2012   OCC     2,500       90.00       155.00  

April 15, 2011

   July 1, 2011   December 31, 2012   OCC     2,000       90.00       155.00  

April 15, 2011

   July 1, 2011   December 31, 2012   OCC     2,000       90.00       155.00  

April 26, 2011

   July 1, 2011   December 31, 2012   ONP     1,000       90.00       165.00  

April 26, 2011

   July 1, 2011   December 31, 2012   ONP     1,000       90.00       165.00  

August 1, 2011

   January 1, 2012   December 31, 2012   ONP     2,000       85.00       135.00  

August 1, 2011

   January 1, 2012   December 31, 2012   ONP     2,000       85.00       135.00  

The costless collar hedges are recorded on the balance sheet at fair value. The fair values of the costless collars are determined using standard option valuation models with assumptions about commodity prices based upon forward commodity price curves in underlying markets (Level 2 in the fair value hierarchy).

The aggregated fair values of the outstanding recycling commodity hedges at December 31, 2011 and 2010 were current assets of $1.4 million and $1.9 million, respectively, and current liabilities of $0.7 million and $6.5 million, respectively, and have been recorded in other current assets and other accrued liabilities in our consolidated balance sheets, respectively.

 

The following table summarizes the impact of our recycling commodity hedges on our results of operations and comprehensive income for the years ended December 31, 2011, 2010 and 2009:

 

                                                                                 

Derivatives

in Cash Flow

Hedging

Relationships

   Amount of
Gain or (Loss)
Recognized in
OCI
on Derivatives
(Effective
Portion)		    

Statement of
Income
Classification

   Amount of
Realized
Gain or (Loss)		    

Location of

Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)

   Amount of Gain or
(Loss) Recognized
in Income on
Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness
Testing)		  
  2011     2010     2009       2011     2010     2009       2011     2010     2009  

Recycling commodity
hedges

   $ 3.0     $ (3.2 )    $ (4.7 )    Revenue   $ (7.8 )    $ (3.2 )    $ 5.1     Other income, net   $ -     $ (0.1 )    $ (0.1 ) 

The effective portions of the changes in fair values of our recycling commodity hedges as of December 31, 2011 and 2010, net of tax, of $0.4 million and $(2.6) million have been recorded in stockholders’ equity as a component of accumulated other comprehensive income.

Fair Value Measurements

In measuring fair values of assets and liabilities, we used quoted prices in active markets where available (Level 1), as well as valuation techniques that maximize the use of observable inputs (Level 2) and minimize the use of unobservable inputs (Level 3). Also, we use market data or assumptions that we believe market participants would use in pricing an asset or liability, including assumptions about risk when appropriate.

As of December 31, 2011 and 2010, our assets and liabilities that are measured at fair value on a recurring basis include the following:

 

                                 
          Fair Value Measurements Using  
    Total as of
December 31,
2011		     Quoted
Prices in
Active
Markets
(Level 1)		     Significant
Other
Observable
Inputs
(Level 2) 		    Significant
Unobservable
Inputs
(Level 3)		  

Assets:

                                

Money market mutual funds

   $ 100.8     $ 100.8     $ -     $ -  

Bonds

     34.6       -       34.6       -  

Fuel hedges - other current assets

     1.6       -       1.6       -  

Commodity hedges - other accrued assets

     1.4       -       1.4       -  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total assets

   $ 138.4     $ 100.8     $ 37.6     $ -  
   

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities:

                                

Fuel hedges - other accrued liabilities

   $ 4.7     $ -     $ 4.7     $ -  

Commodity hedges - other accrued liabilities

     0.7       -       0.7       -  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total liabilities

   $ 5.4     $ -     $ 5.4     $ -  
   

 

 

    

 

 

    

 

 

    

 

 

  

 

 

                                 
          Fair Value Measurements Using  
     Total as of
December 31,
2010		     Quoted
Prices in
Active
Markets
(Level 1)		     Significant
Other
Observable
Inputs
(Level 2)		     Significant
Unobservable
Inputs
(Level 3)		  

Assets:

                                

Money market mutual funds

   $ 135.7     $ 135.7     $ -     $ -  

Bonds

     27.2       -       27.2       -  

Fuel hedges - other current assets

     1.6       -       1.6       -  

Commodity hedges - other accrued assets

     1.9       -       1.9       -  

Interest rate swaps - other non-trade receivables

     5.2       -       5.2       -  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total assets

   $ 171.6     $ 135.7     $ 35.9     $ -  
   

 

 

    

 

 

    

 

 

    

 

 

  

Liabilities:

                                

Fuel hedges - other accrued liabilities

   $ 1.9     $ -     $ 1.9     $ -  

Commodity hedges - other accrued liabilities

     6.5       -       6.5       -  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total liabilities

   $ 8.4     $ -     $ 8.4     $ -  
   

 

 

    

 

 

    

 

 

    

 

 

  

Approximately $27.2 million of restricted marketable securities previously presented as assets measured at fair value on a recurring basis using quoted prices in active markets (Level 1) at December 31, 2010 have been reclassified to be presented as assets measured at fair value on a recurring basis using significant other observable inputs (Level 2). The securities consist of US federal, state and foreign government debt securities and corporate debt securities. Additionally, approximately $18.5 million of cash equivalents were previously presented as assets measured at fair value on a recurring basis using quoted prices in active markets (Level 1), but which did not need to be disclosed, as these amounts are not measured at fair value.