v2.4.0.6
Financial Instruments
 3 Months Ended
Mar. 31, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments
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 table summarizes our outstanding fuel hedges as of March 31, 2013:
 
Year
 
Remaining Gallons Hedged
 
Weighted Average Contract Price per Gallon
2013
 
20,490,000

 
$
3.81

2014
 
27,000,000

 
3.81

2015
 
9,000,000

 
3.73

2016
 
3,000,000

 
3.70



If the national U.S. on-highway average price for a gallon of diesel fuel 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 average price 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 March 31, 2013 and December 31, 2012 were current assets of $5.0 million and $3.1 million, and current liabilities of $0.1 million and $0.4 million, respectively, and have been recorded in other current assets and other accrued liabilities in our consolidated balance sheets, respectively. The ineffective portions of the changes in fair values resulted in (losses) gains of less than $0.1 million for the three months ended March 31, 2013 and 2012, respectively, and have been recorded in other income (expense), net in our consolidated statements of income.
The following table summarizes the impact of our fuel hedges on our comprehensive income for the three months ended March 31, 2013 and 2012:
 
Derivatives in Cash Flow Hedging Relationships
 
Amount of Gain (Loss)
Recognized in OCI on
Derivatives
(Effective Portion)
 
 
Three Months Ended March 31,
 
 
2013
 
2012
Fuel hedges
 
$
1.3

 
$
7.7



Recycling Commodity Hedges

Our revenue from sales 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 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 (commodity hedges).
We entered into costless collar agreements on forecasted sales of OCC and ONP. The agreements involve combining a purchased put option giving us the right to sell OCC and ONP at an established floor strike price with a written call option obligating us to deliver OCC and ONP 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, we will make or receive no payments 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 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 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 as of March 31, 2013:
 
 
 
 
 
 
 
Weighted Average
Year
 
Transaction
Hedged
 
Remaining Tons Hedged
 
Floor
Strike Price
Per Short
Ton
 
Cap
Strike Price
Per Short
Ton
2013
 
OCC
 
166,500

 
$
85

 
$
131

2013
 
ONP
 
18,000

 
65

 
90



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 March 31, 2013 and December 31, 2012 were current assets of $0.4 million and $1.0 million, respectively, and current liabilities of $1.7 million and $1.2 million, respectively, and have been recorded in other current assets and other accrued liabilities in our consolidated balance sheets, respectively. The ineffective portions of the changes in fair values resulted in (losses) gains of less than $0.1 million for the three months ended March 31, 2013 and 2012, respectively, and have been recorded in other income (expense), net in our consolidated statements of income.
The following table summarizes the impact of our recycling commodity hedges on our comprehensive income for the three months ended March 31, 2013 and 2012:
 
Derivatives in Cash Flow Hedging Relationships
 
Amount of Gain (Loss)
Recognized in
OCI on
Derivatives
(Effective Portion)
 
 
 
Three Months Ended March 31,
 
 
 
2013
 
2012
 
Recycling commodity hedges
 
$
(0.6
)
 
$
(0.3
)
 


Fair Value Measurements
In measuring fair values of assets and liabilities, we use valuation techniques that maximize the use of observable inputs (Level 1) and minimize the use of unobservable inputs (Level 3). We also 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 March 31, 2013 and December 31, 2012, our assets and liabilities that are measured at fair value on a recurring basis include the following:
 
 
Fair Value Measurements Using
 
Total as of
March 31, 2013
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market mutual funds
$
62.3

 
$
62.3

 
$
—

 
$
—

Bonds
42.2

 
—

 
42.2

 
—

Fuel hedges - other current assets
5.0

 
—

 
5.0

 
—

Commodity hedges - other current assets
0.4

 
—

 
0.4

 
—

Total assets
$
109.9

 
$
62.3

 
$
47.6

 
$
—

Liabilities:
 
 
 
 
 
 
 
Fuel hedges - other accrued liabilities
0.1

 
—

 
0.1

 
—

Commodity hedges - other accrued liabilities
1.7

 
—

 
1.7

 
—

Total liabilities
$
1.8

 
$
—

 
$
1.8

 
$
—


 
Fair Value Measurements Using
 
Total as of December 31, 2012
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market mutual funds
$
62.8

 
$
62.8

 
$
—

 
$
—

Bonds
40.1

 
—

 
40.1

 
—

Fuel hedges - other current assets
3.1

 
—

 
3.1

 
—

Commodity hedges - other current assets
1.0

 
—

 
1.0

 
—

Total assets
$
107.0

 
$
62.8

 
$
44.2

 
$
—

Liabilities:
 
 
 
 
 
 
 
Fuel hedges - other accrued liabilities
$
0.4

 
$
—

 
$
0.4

 
$
—

Commodity hedges - other accrued liabilities
1.2

 
—

 
1.2

 
—

Total liabilities
$
1.6

 
$
—

 
$
1.6

 
$
—