Fair Value | 3 Months Ended |
Mar. 31, 2015 |
Fair Value Disclosures [Abstract] | |
Fair Value | | | | | | | | | | | | | | | |
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10 | Fair Value | | | | | | | | | | | | | | |
The Company holds mortgage-backed securities, fixed income and equity securities, derivatives (see Note 8, Derivative Instruments) and certain other financial instruments which are carried at fair value. The Company determines fair value based upon quoted prices when available or through the use of alternative approaches, such as model pricing, when market quotes are not readily accessible or available. In determining the fair value of the Company’s obligations, various factors are considered, including: closing exchange or over-the-counter market price quotations; time value and volatility factors underlying options and derivatives; price activity for equivalent instruments; and the Company’s own credit standing. |
These valuation techniques may be based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy: |
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• | Level 1 – Quoted prices for identical instruments in active markets. | | | | | | | | | | | | | | |
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• | Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. | | | | | | | | | | | | | | |
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• | Level 3 – Instruments whose significant value drivers are unobservable. | | | | | | | | | | | | | | |
The following table presents the Company’s assets that are measured at fair value and the related hierarchy levels as of March 31, 2015: |
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| | | Fair Value Measurements |
at Reporting Date Using |
| 31-Mar-15 | | Quoted Prices | | Significant | | Significant |
in Active | Other | Unobservable |
Markets for | Observable | Inputs |
Identical | Inputs | (Level 3) |
Assets | (Level 2) | |
(Level 1) | | |
Assets: | | | | | | | |
Mortgage-backed securities | $ | 788 | | | $ | — | | | $ | 788 | | | $ | — | |
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Asset-backed securities | 1,079 | | | — | | | 1,079 | | | — | |
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Municipal bonds | 494 | | | — | | | 494 | | | — | |
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Equity securities | 16,650 | | | 16,650 | | | — | | | — | |
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Total available-for-sale securities | $ | 19,011 | | | $ | 16,650 | | | $ | 2,361 | | | $ | — | |
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Executive deferred compensation plan trust (a) | $ | 6,406 | | | $ | 6,406 | | | $ | — | | | $ | — | |
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Foreign currency exchange contracts(a) | $ | 2,752 | | | $ | — | | | $ | 2,752 | | | $ | — | |
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Fuel price derivatives – unleaded fuel (b) | $ | 21,363 | | | $ | — | | | $ | 21,363 | | | $ | — | |
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Fuel price derivatives – diesel (b) | 10,261 | | | — | | | — | | | 10,261 | |
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Total fuel price derivatives | $ | 31,624 | | | $ | — | | | $ | 21,363 | | | $ | 10,261 | |
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(a) | The fair value of these instruments is recorded in Other assets. | | | | | | | | | | | | | | |
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(b) | The balance sheet presentation combines unleaded fuel and diesel fuel positions. | | | | | | | | | | | | | | |
The following table presents the Company’s assets and liabilities that are measured at fair value and the related hierarchy levels as of December 31, 2014: |
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| | | Fair Value Measurements |
at Reporting Date Using |
| 31-Dec-14 | | Quoted Prices | | Significant | | Significant |
in Active | Other | Unobservable |
Markets for | Observable | Inputs |
Identical Assets | Inputs | (Level 3) |
(Level 1) | (Level 2) | |
Assets: | | | | | | | |
Mortgage-backed securities | $ | 810 | | | $ | — | | | $ | 810 | | | $ | — | |
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Asset-backed securities | 1,165 | | | — | | | 1,165 | | | — | |
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Municipal bonds | 554 | | | — | | | 554 | | | — | |
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Equity securities | 16,411 | | | 16,411 | | | — | | | — | |
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Total available-for-sale securities | $ | 18,940 | | | $ | 16,411 | | | $ | 2,529 | | | $ | — | |
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Executive deferred compensation plan trust (a) | $ | 5,927 | | | $ | 5,927 | | | $ | — | | | $ | — | |
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Fuel price derivatives – unleaded fuel (b) | $ | 29,120 | | | $ | — | | | $ | 29,120 | | | $ | — | |
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Fuel price derivatives – diesel (b) | 11,849 | | | — | | | — | | | 11,849 | |
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Total fuel price derivatives | $ | 40,969 | | | $ | — | | | $ | 29,120 | | | $ | 11,849 | |
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(a) | The fair value of these instruments is recorded in Other assets. | | | | | | | | | | | | | | |
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(b) | The balance sheet presentation combines unleaded fuel and diesel fuel positions. | | | | | | | | | | | | | | |
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The following table presents a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended: |
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| | March 31, 2015 | | March 31, 2014 | | | | | | | |
| | Fuel Price | | Fuel Price | | | | | | | |
Derivatives – | Derivatives – | | | | | | | |
Diesel | Diesel | | | | | | | |
Beginning balance | | $ | 11,848 | | | $ | (2,142 | ) | | | | | | | |
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Total gains and (losses) – realized/unrealized | | | | | | | | | | | |
Included in earnings (a) | | (1,587 | ) | | 1,519 | | | | | | | | |
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Included in other comprehensive income | | — | | | — | | | | | | | | |
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Purchases, issuances and settlements | | — | | | — | | | | | | | | |
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Transfers (in)/out of Level 3 | | — | | | — | | | | | | | | |
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Ending balance | | $ | 10,261 | | | $ | (623 | ) | | | | | | | |
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(a)Gains and losses (realized and unrealized) associated with fuel price derivatives, included in earnings for the three months ended March 31, 2015 and 2014, are reported in net realized and unrealized losses on fuel price derivatives on the unaudited condensed consolidated statements of income. |
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$400 Million Notes outstanding |
The Notes outstanding as of March 31, 2015, have a carrying value of $400,000 and fair value of $397,000. As of December 31, 2014, the carrying value of the $400,000 in Notes outstanding had a fair value of $388,000. The fair value is based on market rates for the issuance of our debt. The Company determined the fair value of its Notes outstanding are classified as Level 2 in the fair value hierarchy. |
Available-for-sale securities and executive deferred compensation plan trust |
When available, the Company uses quoted market prices to determine the fair value of available-for-sale securities; such items are classified in Level 1 of the fair-value hierarchy. These securities primarily consist of exchange-traded equity securities. |
For mortgage-backed and asset-backed debt securities and bonds, the Company generally uses quoted prices for recent trading activity of assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods are generally classified as Level 2. The obligations related to the deferred compensation plan trust are classified as Level 1 in the fair value hierarchy because the fair value is determined using quoted prices for identical instruments in active markets. |
Foreign currency exchange contracts |
Derivatives include foreign currency forward contracts. Our foreign currency forward contracts are valued using an income approach (Level 2) based on the spot rate less the contract rate multiplied by the notional amount. We consider counterparty credit risk in the valuation of our derivatives. However, counterparty credit risk did not impact the valuation of our derivatives during the first quarter of 2015. |
Fuel price derivative instruments |
The majority of fuel price derivative instruments entered into by the Company are executed over-the-counter and are valued using internal valuation techniques, as no quoted market prices exist for such instruments. The valuation technique and inputs depend on the type of derivative and the nature of the underlying instrument. The principal technique used to value these instruments is a comparison of the spot price of the underlying instrument to its related futures curve adjusted for the Company’s assumptions of volatility and present value, where appropriate. The fair values of derivative contracts reflect the expected cash the Company will pay or receive upon settlement of the respective contracts. |
The key inputs depend upon the type of derivative and the nature of the underlying instrument and include interest rate yield curves, the spot price of the underlying instruments, volatility, and correlation. The item is placed in either Level 2 or Level 3 depending on the observability of the significant inputs to the model. Correlation and inputs with longer tenures are generally less observable. |
Fuel price derivative instruments – diesel. The assumptions used in the valuation of the diesel fuel price derivative instruments use both observable and unobservable inputs. There is a lack of price transparency with respect to forward prices for diesel fuel. Such unobservable inputs are significant to the diesel fuel derivative contract valuation methodology. |
Quantitative Information About Level 3 Fair Value Measurements. The significant unobservable inputs used in the fair value measurement of the Company’s diesel fuel price derivative instruments designated as Level 3 as of March 31, 2015, are as follows: |
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| Fair Value | | Valuation | | Unobservable Input | | Range | | | | | | |
Technique | $ per gallon | | | | | | |
Fuel price derivatives – diesel | $ | 10,261 | | | Option model | | Future retail price of diesel fuel after March 31, 2015 | | $3.72 – 3.86 | | | | | | |
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Sensitivity to Changes in Significant Unobservable Inputs. As presented in the table above, the significant unobservable inputs used in the fair value measurement of the Company’s diesel fuel price derivative instruments are the future retail price of diesel fuel from the second quarter of 2015 through the first quarter of 2016. Significant changes in these unobservable inputs in isolation would result in a significant change in the fair value measurement. |