Derivative Instruments and Hedging Activities | 3 Months Ended |
Sep. 30, 2013 |
Derivative Instruments And Hedging Activities Disclosure [Abstract] | ' |
Derivative Instruments and Hedging Activities | ' |
5 | Derivative Instruments and Hedging Activities | | | | | | | | | | | | | | | | | | | | | | | | | |
All derivative instruments are recorded on the condensed consolidated balance sheets at their respective fair values. Changes in fair value are recognized either in income (loss) or other comprehensive income (loss) (“OCI”), depending on whether the transaction qualifies for hedge accounting and, if so, the nature of the underlying exposure being hedged and how effective the derivatives are at offsetting price movements in the underlying exposure. The effective portions recorded in OCI are recognized in the condensed consolidated statements of income when the hedged item affects earnings. |
We have used certain derivative instruments to manage risk relating to diesel fuel and interest rate exposure. Derivative instruments are not entered into for trading or speculative purposes. We document all relationships between derivative instruments and related items, as well as our risk-management objectives and strategies for undertaking various derivative transactions. |
Interest Rate Risk |
We are exposed to market risk related to changes in interest rates on borrowings under our revolving credit facility, which bears interest based on LIBOR, plus an applicable margin dependent upon our total leverage ratio. We use derivative financial instruments to manage exposure to fluctuations in interest rates on our revolving credit facility. |
Effective January 2013, we entered into an interest rate swap agreement (the “January 2013 Swap”) with a notional amount of $10,000 to help manage a portion of our interest risk related to our floating-rate debt. Under the January 2013 Swap, we pay a fixed rate of 0.42% and receive a rate equivalent to the 30-day LIBOR, adjusted monthly. The January 2013 Swap qualified for hedge accounting and is designated as a cash flow hedge. There was no hedge ineffectiveness for the January 2013 Swap for the three months ended September 30, 2013. The swap will expire in June 2015. |
Effective December 2012, we entered into two interest rate swap agreements (the “December 2012 Swaps”), with notional amounts of $10,000 and $25,000, respectively, to help manage a portion of our interest risk related to our floating-rate debt. Under the December 2012 Swaps, we pay fixed rates of 0.42% and 0.45%, respectively, and receive a rate equivalent to the 30-day LIBOR, adjusted monthly. The December 2012 Swaps qualified for hedge accounting and are designated as cash flow hedges. There was no hedge ineffectiveness for the December 2012 Swaps for the three months ended September 30, 2013. These swaps will expire in June 2015. |
Effective September 2012, we entered into two interest rate swap agreements (the “September 2012 Swaps”), each with notional amounts of $25,000, to help manage a portion of our interest risk related to our floating-rate debt. Under the September 2012 Swaps, we pay fixed rates of 0.40% and 0.42%, respectively, and receive a rate equivalent to the 30-day LIBOR, adjusted monthly. The September 2012 Swaps qualified for hedge accounting and are designated as cash flow hedges. There was no hedge ineffectiveness for the September 2012 Swaps for the three months ended September 30, 2013 and 2012. These swaps will expire in February and March 2015, respectively. |
The net derivative income (loss) recorded in OCI will be reclassified into earnings over the term of the underlying cash flow hedge. The amount that will be reclassified into earnings will vary depending upon the movement of the underlying interest rates. As interest rates decrease, the charge to earnings will increase. Conversely, as interest rates increase, the charge to earnings will decrease. |
Diesel Fuel Risk |
We have a large fleet of vehicles and equipment that primarily uses diesel fuel. As a result, we have market risk for changes in diesel fuel prices. If diesel prices rise, our gross profit and operating income could be negatively affected due to additional costs that may not be fully recovered through increases in prices to customers. |
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We periodically enter into diesel fuel swaps to manage our exposure to diesel price volatility. As of September 30, 2013, we had hedged approximately 60% of our next 12 months of projected diesel fuel purchases at prices ranging from $3.79 to $4.23 per gallon at a weighted-average price of $3.91 per gallon. We are not currently utilizing hedge accounting for any active diesel fuel derivatives and as such changes in the fair value of the diesel fuel swaps are recognized in the condensed consolidated statements of income. |
Balance Sheet and Statement of Income Information |
The fair value of derivatives at September 30, 2013 and June 30, 2013 is summarized below: |
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| | | | Asset Derivatives at September 30, 2013 | | | Liability Derivatives at September 30, 2013 | |
| | Balance Sheet Location | | Gross Fair | | | Gross Fair | | | Net Fair | | | Gross Fair | | | Gross Fair | | | Net Fair | |
Value of | Value Offset | Value | Value of | Value Offset | Value |
Recognized | | | Recognized | | |
Assets | | | Liabilities | | |
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Interest rate swaps | | Accrued expenses and other | | $ | — | | | $ | — | | | $ | — | | | $ | (187 | ) | | $ | — | | | $ | (187 | ) |
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Total derivatives designated as hedging instruments | | | | $ | — | | | $ | — | | | $ | — | | | $ | (187 | ) | | $ | — | | | $ | (187 | ) |
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Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Diesel fuel swaps | | Prepaid expenses and other | | $ | 46 | | | $ | (39 | ) | | $ | 7 | | | $ | (39 | ) | | $ | 39 | | | $ | — | |
Diesel fuel swaps | | Accrued expenses and other | | | 36 | | | | (36 | ) | | | — | | | | (114 | ) | | | 36 | | | | (78 | ) |
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Total derivatives not designated as hedging instruments | | | | $ | 82 | | | $ | (75 | ) | | $ | 7 | | | $ | (153 | ) | | $ | 75 | | | $ | (78 | ) |
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Total derivatives | | | | $ | 82 | | | $ | (75 | ) | | $ | 7 | | | $ | (340 | ) | | $ | 75 | | | $ | (265 | ) |
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| | | | Asset Derivatives at June 30, 2013 | | | Liability Derivatives at June 30, 2013 | |
| | Balance Sheet Location | | Gross Fair | | | Gross Fair | | | Net Fair | | | Gross Fair | | | Gross Fair | | | Net Fair | |
Value of | Value Offset | Value | Value of | Value Offset | Value |
Recognized | | | Recognized | | |
Assets | | | Liabilities | | |
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Interest rate swaps | | Accrued expenses and other | | $ | — | | | $ | — | | | $ | — | | | $ | (77 | ) | | $ | — | | | $ | (77 | ) |
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Total derivatives designated as hedging instruments | | | | $ | — | | | $ | — | | | $ | — | | | $ | (77 | ) | | $ | — | | | $ | (77 | ) |
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Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Diesel fuel swaps | | Accrued expenses and other | | $ | 22 | | | $ | (22 | ) | | $ | — | | | $ | (316 | ) | | $ | 22 | | | $ | (294 | ) |
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Total derivatives not designated as hedging instruments | | | | $ | 22 | | | $ | (22 | ) | | $ | — | | | $ | (316 | ) | | $ | 22 | | | $ | (294 | ) |
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Total derivatives | | | | $ | 22 | | | $ | (22 | ) | | $ | — | | | $ | (393 | ) | | $ | 22 | | | $ | (371 | ) |
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The effects of derivative instruments on the condensed consolidated statements of income for the three months ended September 30, 2013 and 2012 are summarized in the following tables: |
Derivatives designated as cash flow hedging instruments: |
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| | | | | | | | Location of Loss | | Amount of Loss | | | | | | | | | |
| | Amount of Loss | | | Reclassified from | | Reclassified from | | | | | | | | | |
| | Recognized in OCI | | | Accumulated OCI into | | Accumulated OCI into | | | | | | | | | |
| | (Effective Portion) | | | Earnings | | Earnings | | | | | | | | | |
Three Months Ended September 30, | | 2013 | | | 2012 | | | | | 2013 | | | 2012 | | | | | | | | | |
Interest rate swaps (1) | | $ | (67 | ) | | $ | (79 | ) | | Interest expense | | $ | (35 | ) | | $ | (2 | ) | | | | | | | | |
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Totals | | $ | (67 | ) | | $ | (79 | ) | | | | $ | (35 | ) | | $ | (2 | ) | | | | | | | | |
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-1 | Net of income tax. | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as cash flow hedging instruments: |
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| | Location of Gain | | | | | | | | | | | | | | | | | | | | | |
| | Recognized in | | | Amount of Gain Recognized in | | | | | | | | | | | | | | | |
| | Earnings | | | Earnings | | | | | | | | | | | | | | | |
Three Months Ended September 30, | | | | | 2013 | | | 2012 | | | | | | | | | | | | | | | |
Diesel fuel swaps | | | Cost of operations | | | $ | 223 | | | $ | 1,724 | | | | | | | | | | | | | | | |
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Total | | | | | | $ | 223 | | | $ | 1,724 | | | | | | | | | | | | | | | |
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Accumulated OCI |
For the interest rate swaps, the following table summarizes the net derivative losses, net of taxes, deferred into accumulated OCI and reclassified to income for the periods indicated below. |
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| | Three Months Ended | | | | | | | | | | | | | | | | | | | |
| | September 30, | | | | | | | | | | | | | | | | | | | |
| | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | |
Net accumulated derivative loss deferred at beginning of period | | $ | (47 | ) | | $ | — | | | | | | | | | | | | | | | | | | | |
Changes in fair value | | | (102 | ) | | | (81 | ) | | | | | | | | | | | | | | | | | | |
Reclassification to net income | | | 35 | | | | 2 | | | | | | | | | | | | | | | | | | | |
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Net accumulated derivative loss deferred at end of period | | $ | (114 | ) | | $ | (79 | ) | | | | | | | | | | | | | | | | | | |
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The estimated net amount of the existing losses in OCI at September 30, 2013 expected to be reclassified into net income over the next 12 months is approximately $65. This amount was computed using the fair value of the cash flow hedges at September 30, 2013 and will differ from actual reclassifications from OCI to net income during the next 12 months. |