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Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2017
Derivative Financial Instruments [Abstract]  
Derivative Financial Instruments

11.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 on 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 Credit Agreement.  The Company’s strategy to achieve that objective involves entering into interest rate swaps.  The interest rate swaps outstanding at March 31, 2017 were specifically designated to the Credit Agreement and accounted for as cash flow hedges. 

At March 31, 2017, the Company’s derivative instruments included 11 interest rate swap agreements as follows: 



 

 

 

 

 

 

 

 

 

 

 

 



Date Entered

 

Notional Amount

 

Fixed Interest Rate Paid*

 

Variable Interest Rate Received

 

Effective Date

 

 

Expiration Date

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

April 2016

 

$

 100,000 

 

 1.000% 

 

 

1-month LIBOR

 

February 2017

 

February 2020

June 2016

 

$

 75,000 

 

 0.850% 

 

 

1-month LIBOR

 

February 2017

 

February 2020

June 2016

 

$

 150,000 

 

 0.950% 

 

 

1-month LIBOR

 

January 2018

 

January 2021

June 2016

 

$

 150,000 

 

 0.950% 

 

 

1-month LIBOR

 

January 2018

 

January 2021

July 2016

 

$

 50,000 

 

 0.900% 

 

 

1-month LIBOR

 

January 2018

 

January 2021

July 2016

 

$

 50,000 

 

 0.890% 

 

 

1-month LIBOR

 

January 2018

 

January 2021

____________________

*  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 March 31, 2017, the Company’s derivative instruments included four 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

May 2015

 

 300,000 

 

 $3.2800 

 

DOE Diesel Fuel Index*

 

January 2016

 

December 2017

May 2015

 

 200,000 

 

 $3.2750 

 

DOE Diesel Fuel Index*

 

January 2016

 

December 2017

July 2016

 

 500,000 

 

 $2.4988 

 

DOE Diesel Fuel Index*

 

January 2017

 

December 2017

July 2016

 

 1,000,000 

 

 $2.6345 

 

DOE Diesel Fuel Index*

 

January 2018

 

December 2018

____________________

*  If the national U.S. on-highway average price for a gallon of diesel fuel (“average price”), as published by the U.S. 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 March 31, 2017, 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

 

Prepaid expenses and other current assets(a)

$

 1,091 

 

Accrued liabilities(a)

$

 (2,449)



 

Other assets, net

 

 13,458 

 

Other long-term liabilities

 

 (1,652)



 

 

 

 

 

 

 

 

Fuel hedges

 

Prepaid expenses and other current assets(b)

 

 466 

 

Accrued liabilities(b)

 

 (3,015)



 

Other assets, net

 

 25 

 

 

 

 

Total derivatives designated as cash flow hedges

 

 

$

 15,040 

 

 

$

 (7,116)

____________________

(a) Represents the estimated amount of the existing unrealized gains and losses, respectively, on interest rate swaps as of March 31, 2017 (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 gains and losses, respectively, on fuel hedges as of March 31, 2017 (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, 2016, 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

 

Prepaid expenses and other current assets

$

 127 

 

Accrued liabilities

$

 (3,260)



 

Other assets, net

 

 13,822 

 

Other long-term liabilities

 

 (2,350)



 

 

 

 

 

 

 

 

Fuel hedges

 

Prepaid expenses and other current assets

 

 1,343 

 

Accrued liabilities

 

 (3,258)



 

Other assets, net

 

 1,651 

 

 

 

 

Total derivatives designated as cash flow hedges

 

 

$

 16,943 

 

 

$

 (8,868)



 

 

 

 

 

 

 

 



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 months ended March 31, 2017 and 2016: 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 Classification

 

Amount of (Gain) or Loss Reclassified from AOCL into Earnings, Net of Tax (Effective Portion) (b),(c)



 

Three Months Ended

March 31,

 

 

 

Three Months Ended

March 31,



 

2017

 

2016

 

 

 

2017

 

2016

Interest rate swaps

 

$

 755 

 

$

 (4,144)

 

Interest expense

 

$

 795 

 

$

 1,060 

Fuel hedges

 

 

 (1,994)

 

 

 (808)

 

Cost of operations

 

 

 596 

 

 

 1,116 

Total

 

$

 (1,239)

 

$

 (4,952)

 

 

 

$

 1,391 

 

$

 2,176 

___________________

(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 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 three months ended March 31, 2017 and 2016. 

See Note 15 for further discussion on the impact of the Company’s hedge accounting to its consolidated comprehensive income (loss) and AOCL.