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Note 12 - Fuel Derivatives
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12 Months Ended |
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Jun. 30, 2012
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| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
(12)
FUEL DERIVATIVES
In
the Company's day to day business activities we are exposed
to certain market risks, including the effects of changes
in fuel prices. The Company continually reviews
new ways to reduce the potentially adverse effects that the
volatility of fuel markets may have on operating
results. In an effort to reduce the variability
of the ultimate cash flows associated with fluctuations in
diesel fuel prices, the Company has begun to enter into
futures contracts. These instruments will be
heating oil futures contracts as the related index, New
York Mercantile Exchange ("NYMEX"), generally exhibits high
correlation with the changes in the dollars of the
forecasted purchase of diesel fuel. The Company does not
engage in speculative transactions, nor does it hold or
issue financial instruments for trading purposes.
As
of June 30, 2012, the Company had entered into future
contracts pertaining to 1,764,000 gallons in heating oil
through December 2012 (on average 294,000 gallons per
month). 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. The Company has done
retrospective and prospective regression analyses that
showed the changes in the prices of diesel fuel and heating
oil were deemed to be highly effective based on the
relevant authoritative guidance. Accordingly, we
have designated the respective hedges as cash flow
hedges.
We
perform both a prospective and retrospective assessment of
the effectiveness of our hedge contracts at inception and
quarterly. If our analysis shows that the
derivatives are not highly effective as hedges, we will
discontinue hedge accounting for the period and
prospectively recognize changes in the fair value of the
derivative being recognized through earnings. As
a result of our effectiveness assessment at inception and
at June 30, 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.
We
recognize all derivative instruments at fair value on our
consolidated condensed balance sheets in other assets or
other accrued expenses. The Company's derivative
instruments are designated as cash flow hedges, thus the
effective portion of the gain or loss on the derivative is
reported as a component of accumulated other comprehensive
income and will be reclassified into earnings in the same
period during which the hedged transactions affect
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 other income
or expense on our consolidated condensed statements of
operations. The ineffective portion of the hedge was
immaterial.
Based
on the amounts in accumulated other comprehensive income as
of June 30, 2012 and the expected timing of the purchases
of the diesel hedged, we expect to reclassify $0.1 million
of loss on derivative instruments from accumulated other
comprehensive income to the statement of income, as an
offset to fuel expense, during the next three 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.
Outstanding
financial derivative instruments expose us to credit loss
in the event of nonperformance by the companies with which
we have these agreements. Our credit exposure
related to these financial instruments is represented by
the fair value of contracts reported as
assets. To evaluate credit risk, we review each
counterparty's audited financial statements and credit
ratings and obtain references. Any credit
valuation adjustments deemed necessary have been reflected
in the fair value of the instrument.
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