Derivative Instruments and Hedging Activities

3 Months Ended

Sep. 30, 2011

Derivative Instruments and Hedging Activities [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 statement of operations when the hedged item affects earnings.

We have used certain derivative instruments to enhance our ability 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 senior 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 May 2010, we entered into an interest rate swap agreement (the “May 2010 Swap”) with a notional amount of $20,000 to help manage a portion of our interest risk related to our floating-rate debt interest risk. The May 2010 Swap will expire in May 2012. Under the May 2010 Swap, we pay a fixed rate of 1.1375% and receive a rate equivalent to the thirty-day LIBOR, adjusted monthly. The May 2010 Swap qualified for hedge accounting and was designated as a cash flow hedge. There was no hedge ineffectiveness for the May 2010 Swap for the three months ended September 30, 2011.

Effective June 2010, we entered into an interest rate swap agreement (the “June 2010 Swap”) with a notional amount of $20,000 to help manage a portion of our interest risk related to our floating-rate debt interest risk. The June 2010 Swap will expire in June 2012. Under the June 2010 Swap, we pay a fixed rate of 1.0525% and receive a rate equivalent to the thirty-day LIBOR, adjusted monthly. The June 2010 Swap qualified for hedge accounting and was designated as a cash flow hedge. There was no hedge ineffectiveness for the June 2010 Swap for the three months ended September 30, 2011.

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 (loss) would be negatively affected due to additional costs that may not be fully recovered through increases in prices to customers.

We periodically enter into diesel fuel swaps to decrease our price volatility. As of September 30, 2011, we had hedged approximately 50% of our next 12 months of projected diesel fuel purchases at prices ranging from $3.23 to $3.99 per gallon at a weighted-average price of $3.82. We are not currently utilizing hedge accounting for any active diesel fuel derivatives.

Balance Sheet and Statement of Operations Information

The fair value of derivatives at September 30, 2011 and June 30, 2011 is summarized below:

		Asset Derivatives				Liability Derivatives
		Fair Value		Fair Value		Fair Value		Fair Value
		at Sept. 30,		at June 30,		at Sept. 30,		at June 30,
	Balance Sheet Location	2011		2011		2011		2011
Derivatives designated as hedging instruments:
Interest rate swaps	Accrued expenses and other	$	—	$	—	$	213	$	291
Total derivatives designated as hedging instruments		$	—	$	—	$	213	$	291
Derivatives not designated as hedging instruments:
Diesel fuel swaps (gross) (1)	Prepaid expenses and other	$	—	$	888	$	—	$	—
Diesel fuel swaps (gross) (1)	Accrued expenses and other		—		—		587		—
Total derivatives not designated as hedging instruments		$	—	$	888	$	587	$	—
Total derivatives		$	—	$	888	$	800	$	291

(1) The fair values of asset and liability derivatives with the same counterparty are netted on the balance sheet.

The effects of derivative instruments on the condensed consolidated statements of operations for the three months ended September 30, 2011 and 2010 are summarized in the following tables:

Derivatives designated as cash flow hedging instruments:

						Location of Loss	Amount of Loss
	Amount of (Loss) Gain					Reclassified from	Reclassified from
	Recognized in OCI					Accumulated OCI	Accumulated OCI into
For the Three Months	(Effective Portion)					into Earnings	Earnings
Ended September 30,	2011		2010				2011			2010
Interest rate swaps (1)	$	56	$	(122	)	Interest expense (1)	$	(56	)	$	(49	)
Totals	$	56	$	(122	)		$	(56	)	$	(49	)

(1) Net of tax.

Derivatives not designated as cash flow hedging instruments:

	Location of Gain
	(Loss) Recognized	Amount of Gain (Loss)
For the Three Months Ended	in Earnings	Recognized in Earnings
September 30,		2011			2010
Diesel fuel swaps	Cost of operations	$	(1,475	)	$	432
Total		$	(1,475	)	$	432

Accumulated OCI

For the interest rate swaps, the following table summarizes the net derivative gains or losses, net of taxes, recorded into accumulated OCI and reclassified to loss for the periods indicated below.

	For the Three Months Ended
	September 30,
	2011			2010
Net accumulated derivative loss deferred at beginning of period	$	(178	)	$	(142	)
Changes in fair value		—			(179	)
Reclassification to net income (loss)		56			49
Net accumulated derivative loss deferred at end of period	$	(122	)	$	(272	)

The estimated net amount of the existing losses in OCI at September 30, 2011 expected to be reclassified into net income (loss) over the next twelve months is approximately $136. This amount was computed using the fair value of the cash flow hedges at September 30, 2011 and will differ from actual reclassifications from OCI to net income (loss) during the next twelve months.

For the three months ended September 30, 2011 and 2010, there were no reclassifications to earnings due to hedged firm commitments no longer deemed probable or due to hedged forecasted transactions that had not occurred by the end of the originally specified time period.