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Alpha Natural Resources 10-Q 2009 SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form 10-Q
(Mark
One)
For
the quarterly period ended March 31, 2009
OR
For
the transition period from
to
Commission
File No. 1-32423
ALPHA
NATURAL RESOURCES, INC.
(Exact
name of registrant as specified in its charter)
Registrant’s
telephone number, including area code:
(276) 619-4410
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. þ Yes ¨ No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). ¨ Yes ¨ No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
þ Large accelerated
filer o Accelerated
filer ¨ Non-accelerated
filer ¨ Smaller reporting
company
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
¨ Yes þ No
Number
of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of
May 1, 2009 – 71,351,023
Item 1.
Financial
Statements
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March
31, 2009
(In
thousands, except percentages, share, per share, and per gallon
data)
(1) Business
and Basis of Presentation
Organization
and Business
Alpha
Natural Resources, Inc. and its consolidated subsidiaries (the “Company”) are
primarily engaged in the business of extracting, processing and marketing coal
from deep and surface mines, located in the Central and Northern Appalachian
regions of the United States, for sale to utility and steel companies in the
United States and in international markets.
Basis
of Presentation
The
accompanying interim condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial reporting. Accounting measurements at interim dates inherently
rely on estimates more than at year-end; however, in the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Significant items subject to such
estimates and assumptions include inventories; mineral reserves; allowance for
non-recoupable advanced mining royalties; asset retirement obligations; employee
benefit liabilities; future cash flows associated with assets; useful lives for
depreciation, depletion, and amortization; workers’ compensation and black lung
claims; postretirement benefits other than pensions; income taxes; revenue
recognized using the percentage of completion method; and fair value of
financial instruments. Due to the subjective nature of these
estimates, actual results could differ from those estimates. Results
of operations for the three months ended March 31, 2009 are not necessarily
indicative of the results to be expected for the year ending December 31,
2009. These financial statements should be read in conjunction with the audited
financial statements and related notes as of and for the year ended
December 31, 2008 included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
Reclassifications
Prior
period cost of coal sales have been adjusted to exclude changes in the fair
value of diesel fuel derivative contracts in the amount of $2,365, which is now
included as increase in fair value of derivative instruments, net, to conform to
the current year presentation. This reclassification adjustment had
no effect on previously reported income from continuing operations or net
income.
On
September 26, 2008, the Company sold its interests in Gallatin Materials, LLC
(“Gallatin”), a lime manufacturing business, to an unrelated third
party. The results of operations for the prior periods have been
reported as discontinued operations (See Note 15).
On
December 3, 2008, the Company announced the permanent closure of the Whitetail
Kittanning Mine, an adjacent coal preparation plant and other ancillary
facilities (“Kingwood”). The decision resulted from adverse geologic
conditions and regulatory requirements that rendered the coal seam unmineable at
this location. The mine stopped producing coal in early January 2009
and Kingwood ceased equipment recovery operations at the end of April
2009. Beginning in the first quarter of 2009, the results of
operations for the current and prior periods have been reported as discontinued
operations (See Note 15).
On
January 1, 2009, the Company adopted FASB Staff Position (“FSP”) Accounting
Principle Board (“APB”) 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (“FSP APB 14-1”). FSP APB 14-1 is effective for
financial statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal
years. Early adoption was not permitted and retroactive application
to all periods presented is required. Due to the adoption of FSP APB
14-1, certain adjustments have been made to the prior period presented for the
Company’s condensed consolidated balance sheets (See Note 6).
(2) New
Accounting Pronouncements
There
were no issued accounting standards not adopted by the Company as of March 31,
2009 that are expected to have a material impact on the Company’s financial
statements.
(3) Earnings
Per Share
The
number of shares used to calculate basic earnings (loss) per share is based on
the weighted average number of the Company’s outstanding common shares during
the respective periods. The number of shares used to calculate diluted earnings
(loss) per share is based on the number of common shares used to calculate basic
earnings (loss) per share plus the dilutive effect of stock options and other
stock-based instruments held by the Company’s employees and directors during
each period and the 2.375% convertible senior notes due 2015 that are
convertible into the Company’s common stock. The convertible senior notes due
2015, which were issued in April 2008, become dilutive for earnings per share
calculations when the average share price for the quarter exceeds the conversion
price of $54.66. The shares that would be issued to settle the
conversion spread are included in the diluted earnings per share calculation
when the conversion option is in the money. For the three months ended March 31,
2009, the conversion option for the convertible senior notes due 2015 was not in
the money, therefore there was no dilutive earnings per share
impact.
The
computations of basic and diluted net income per share are set forth
below:
(4) Inventories
Inventories
consisted of the following:
(5) Income
Taxes
The
income tax provision from continuing operations and discontinued operations for
the three months ended March 31, 2009 is as follows:
A
reconciliation of the statutory federal income tax expense at 35% to actual
income tax expense on income from continuing operations is as
follows:
The
Company has concluded that it is more likely than not that deferred tax assets,
net of valuation allowances, currently recorded will be realized. The amount of
the valuation allowance takes into consideration the Alternative Minimum Tax
system as required by Statement of Financial Accounting Standards (“SFAS”) No.
109, Accounting for Income
Taxes (“SFAS 109”). The Company monitors the valuation allowance each
quarter and makes adjustments to the allowance as appropriate.
(6) Long-Term
Debt
Long-term
debt consisted of the following:
Term
Loan and Revolving Credit Facility
The
Company has a senior secured credit facility (“Credit Agreement”) with a group
of lending institutions led by Citicorp North America, Inc. as the
administrative agent, which consists of a $250,000 term loan facility and a
$375,000 revolving credit facility. As of March 31, 2009, the Company
had $361,926 available under the revolving credit facility. The
revolving credit facility will terminate in October 2010 and the term loan will
mature in October 2012.
The
Credit Agreement places restrictions on the ability of Alpha Natural Resources
LLC (“ANR LLC”) and its subsidiaries to make distributions or loans to the
Company. The net assets of ANR LLC are restricted, except for allowable
distributions for the payment of income taxes, administrative expenses, payments
on qualified debt, and, in certain circumstances, dividends or repurchases of
common stock of the Company.
All of
the Company borrowings under the Credit Agreement are at a variable rate, so the
Company is exposed to the effect of rising interest rates. As of March 31, 2009,
the Company has a $233,125 term loan outstanding with a variable interest rate
based upon the 3-month London Interbank Offered Rate (“LIBOR”) (1.25% at March
31, 2009) plus the applicable margin (1.50% at March 31, 2009). To reduce the
Company's exposure to rising interest rates, effective May 22, 2006, the Company
entered into a pay-fixed, receive variable interest rate swap on the notional
amount of $233,125 for a period of approximately six and one-half years. In
effect, this swap converted the variable interest rates based on LIBOR to a
fixed interest rate of 5.59% plus the applicable margin defined in the debt
agreement for the remainder of the term loan. The Company accounts for the
interest rate swap as a cash flow hedge and changes in fair value of the swap
are recorded in other comprehensive income (loss). The critical terms of the
swap and the underlying debt instrument that it hedges coincide, resulting in no
hedge ineffectiveness being recognized in the income statement during the
quarters ended March 31, 2009 and 2008. The fair value of the swap at
March 31, 2009 was $27,897 which was recorded in other liabilities in the
condensed consolidated balance sheet and the offsetting unrealized loss of
$20,937, net of tax benefit, was recorded in accumulated other comprehensive
loss. As interest expense is accrued on the debt obligation, amounts in
accumulated other comprehensive loss related to the derivative hedging
instrument are reclassified into earnings to obtain a net cost on the debt
obligation of 5.59% plus the applicable margin.
2.375%
Convertible Senior Notes Due June 2015
In April
2008, the Company completed a public offering of $287,500 aggregate principal
amount of 2.375% convertible senior notes due 2015. The notes bear
interest at a rate of 2.375% per annum, payable semi-annually in arrears on
April 15 and October 15 of each year, beginning on October 15, 2008. The notes
will mature on April 15, 2015, unless previously repurchased by the Company or
converted. The notes are convertible in certain circumstances and in
specified periods (as described in the Supplemental Indenture) at an initial
conversion rate of 18.2962 shares of common stock per $1,000 principal amount of
notes, subject to adjustment upon the occurrence of certain events set forth in
the Indenture. Upon conversion of notes, holders will receive cash up to the
principal amount of the notes to be converted, and any excess conversion value
will be delivered in cash, shares of common stock or a combination thereof, at
the Company's election.
On
January 1, 2009, the Company adopted FSP APB 14-1, which applies to all
convertible debt instruments that have a ‘‘net settlement feature,” which means
that such convertible debt instruments, by their terms, may be settled either
wholly or partially in cash upon conversion. FSP APB 14-1
requires issuers of convertible debt instruments that may be settled wholly or
partially in cash upon conversion to separately account for the liability and
equity components in a manner reflective of the issuers’ nonconvertible debt
borrowing rate. Upon adoption of FSP APB 14-1, the Company retrospectively
applied the change in accounting principle to prior accounting
periods. Adoption of the standard resulted in the following balance
sheet impacts at December 31, 2008: (1) a reduction of debt by $87,830 and an
increase in paid in capital of $69,851, (2) an increase to deferred loan
costs of $5,309, (3) a net reduction to deferred tax assets of $23,124 ($36,262
reduction in deferred tax assets, offset by a $13,138 change in the valuation
allowance), and (4) a net increase in retained earnings of $164. The
adoption of FSP APB 14-1 resulted in an increase to non-cash interest expense of
$2,838 for the three month period ending March 31, 2009, of which $2,626 is
related to the accretion of the convertible debt discount and $212 is related to
the amortization of the deferred loan fees that were reestablished as described
above. The deferred loan fees and debt discount will be amortized and
accreted, respectively, over the term of the convertible notes, which are due in
2015. Adoption of the standard had no impact on the results of
operations for the three months ended March 31, 2008. As of
March 31, 2009, the notes were not convertible, and the carrying amounts of the
debt and the equity components were $202,296 and $95,511,
respectively. The unamortized discount of the liability was $85,204
at March 31, 2009 and will continue to be amortized over 6 years. For
the period ending March 31, 2009, the effective interest rate on the liability
component was 8.64% and the Company recognized interest expense of $1,707 and
$2,626 on the contractual interest coupon and amortization on the discount of
the liability, respectively.
Accounts
Receivable Securitization
On March
25, 2009, the Company and certain subsidiaries became a party to an $85,000
accounts receivable securitization facility with a third party financial
institution (the “A/R Facility”) by forming ANR Receivables Funding, LLC (the
“SPE”), a special-purpose, bankruptcy-remote subsidiary, wholly-owned
indirectly by Alpha Natural Resources, Inc. The sole purpose of the
SPE is to purchase trade receivables generated by certain of the Company’s
operating subsidiaries, without recourse (other than customary indemnification
obligations for breaches of specific representations and warranties), and then
transfer senior undivided interests in up to $85,000 of those accounts
receivable to a financial institution for the issuance of letters of credit or
for cash borrowings for the ultimate benefit of the Company.
The SPE
is consolidated into the Company’s financial statements, and therefore the A/R
Facility has no impact on the Company’s consolidated financial statements as of
or for the period ended March 31, 2009. The assets of the SPE, however, are not
available to the creditors of the Company or any other
subsidiary. The SPE pays facility fees, program fees and letter of
credit fees (based on amounts of outstanding letters of credit), as defined in
the definitive agreements for the A/R Facility. Available borrowing
capacity is based on the amount of eligible accounts receivable as defined under
the terms of the definitive agreements for the A/R Facility. The receivables
purchase agreement supporting the borrowings under the A/R Facility is subject
to renewal annually and, unless terminated earlier, expires March 24,
2010.
As of
March 31, 2009, letters of credit in the amount $67,000 were outstanding
under the A/R Facility and no cash borrowing transactions had taken place.
At March 31, 2009, the SPE had available borrowing capacity under the A/R
Facility of $10,800. Under the A/R Facility, the SPE is subject to
certain affirmative, negative and financial covenants customary for financings
of this type, including restrictions related to, among other things, liens,
payments, merger or consolidation and amendments to the agreements underlying
the receivables pool. Alpha Natural Resources, Inc. has agreed to guarantee the
performance by its subsidiaries, other than the SPE, of their obligations under
the A/R Facility. The Company does not guarantee repayment of the
SPE’s debt under the A/R Facility. The financial institution, which
is the administrator, may terminate the A/R Facility upon the occurrence of
certain events that are customary for facilities of this type (with customary
grace periods, if applicable), including, among other things, breaches of
covenants, inaccuracies of representations and warranties, bankruptcy and
insolvency events, changes in the rate of default or delinquency of the
receivables above specified levels, a change of control and material judgments.
A termination event would permit the administrator to terminate the program and
enforce any and all rights and remedies, subject to cure provisions, where
applicable.
(7) Asset
Retirement Obligation
At March
31, 2009 and December 31, 2008, the Company has recorded asset retirement
obligation accruals for mine reclamation and closure costs totaling $101,060 and
$98,940, respectively. The portion of the costs expected to be incurred within a
year in the amounts of $9,037 and $8,375 at March 31, 2009 and December 31,
2008, respectively, are included in accrued expenses and other current
liabilities. These regulatory obligations are secured by surety bonds in the
amount of $159,497 at March 31, 2009 and $148,952 at December 31, 2008.
Changes in the reclamation obligation were as follows:
(8) Share-Based
Compensation Awards
As of
March 31, 2009, the total number of shares of Alpha Natural Resources, Inc.
common stock available for issuance or delivery under the Company’s current
Long-Term Incentive Plan (“LTIP”) was 4,607,820 shares. During the
three months ended March 31, 2009 and 2008, all shared-based compensation awards
granted by the Company consisted of non-vested restricted shares, non-vested
performance shares, and restricted stock units.
Share-based
compensation expense totaled $3,225 and $2,989 for the three months ended March
31, 2009 and 2008, respectively.
For the
three months ended March 31, 2009 and 2008, approximately 72% and 66%,
respectively, of share-based compensation expense is reported as selling,
general and administrative expenses, included in the Corporate and Eliminations
category for segment reporting purposes (Note 13), and approximately 28% and
34%, respectively, is reported as a component of cost of sales, included in the
Coal Operations and All Other segment for segment reporting purposes (Note
13). As of March 31, 2009 and December 31, 2008, approximately $242
and $170, respectively, of share-based compensation costs was capitalized as a
component of inventories. The Company reports the benefits of income tax
deductions that exceed recognized compensation as cash flow from financing
activities. The excess tax benefits during the three months ended March 31, 2009
and 2008 were $0 and $734, respectively. In
November 2008, the Board of Directors authorized the Company to repurchase
common shares from employees to satisfy the employees’ minimum statutory tax
withholdings upon the vesting of restricted stock and performance
shares. During the three months ended March 31, 2009, 418,433
shares of the Company’s common stock granted to employees vested. During the
three months ended March 31, 2009, the Company repurchased 106,739 common shares
from employees to satisfy the employees’ minimum statutory tax withholdings upon
vesting at an average price paid per share of $18.96.
Stock
Options
Stock
option activity for the three months ended March 31, 2009 is summarized in the
following table:
The
aggregate intrinsic value of options outstanding at March 31, 2009 was $722 and
the aggregate intrinsic value of exercisable options was $339. The total
intrinsic value of options exercised during the three months ended March 31,
2009 and 2008 was $0 and $2,048, respectively. Cash received from the
exercise of stock options during the three months ended March 31, 2009 and 2008
was $0 and $1,688, respectively. As of March 31, 2009, $1,219 of unrecognized
compensation cost related to stock options is expected to be recognized as
expense over a weighted-average period of 0.79 years. The weighted-average grant
date fair value of options outstanding at March 31, 2009 and 2008 was $7.33 and
$7.38, respectively.
Restricted
Share Awards
Restricted
share award activity for the three months ended March 31, 2009 is summarized in
the following table:
The
Company granted 917,684 restricted share awards during the three month period
ending March 31, 2009. The restricted shares vest ratably over
three-years or cliff vest after three years (with accelerated vesting upon a
change of control), depending on the recipients’ position with the
Company.
The fair
value of restricted share awards is based on the closing stock price on the date
of grant, and, for purposes of expense recognition, the total number of awards
expected to vest is adjusted for estimated forfeitures. As of March 31, 2009,
there was $20,484 of unamortized compensation cost related to non-vested shares,
which is expected to be recognized as expense over a weighted-average period of
2.32 years.
Performance
Share Awards
Performance
share award activity for the three months ended March 31, 2009 is summarized in
the following table:
The
Company issued 35,219 performance shares to employees on February 10, 2009,
related to the 2006 performance grant, which ended on December 31,
2008. Based upon the Company’s performance against the
pre-established operating income and return on invested capital targets, a 30%
award was issued to employees.
The
Company granted 403,592 performance share awards during the three month period
ending March 31, 2009. Recipients of these awards can receive shares
of the Company's common stock at the end of a performance period which ends on
December 31, 2011, based on the Company's actual performance against
pre-established operating income goals, strategic goals, and total shareholder
return goals. In order to receive the shares, the recipient must also be
employed by the Company on the vesting date. The performance share awards
represent the number of shares of common stock to be awarded based on the
achievement of targeted performance and may range from 0% to 200% of the
targeted amount. The grant date fair value of the awards related to operating
income targets is based on the closing price of the Company's common stock on
the New York Stock Exchange on the grant date of the award and is being
amortized over the performance period. The awards related to strategic goals do
not meet the criteria for grant date pursuant to SFAS No. 123(R), Share-based Payments (as
amended) (“SFAS 123”). The fair value of the awards related to total shareholder
return targets is based upon a Monte Carlo simulation and is being amortized
over the performance period. For executive officers of the Company to receive
these performance share awards, the Company must achieve a pre-determined EBITDA
level during the performance period in addition to the criteria set for all
other employees participating in the plan. The Company reassesses at
each reporting date whether achievement of each of the performance conditions is
probable, as well as estimated forfeitures, and adjusts the accruals of
compensation expense as appropriate.
As of
March 31, 2009, there was $6,828 of unamortized compensation cost related to the
outstanding performance share awards. This unamortized compensation
cost is expected to be recognized over the remaining periods up to December 31,
2011.
(9)
Derivative Financial Instruments
Derivative
financial instruments are accounted for in accordance with SFAS 133, Accounting for Derivative
Instruments and Hedging Activities (“SFAS 133”), which requires all
derivative financial instruments to be reported on the balance sheet at fair
value. Changes in fair value are recognized either in earnings or equity,
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.
On
January 1, 2009, the Company adopted SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”), which amends SFAS
133. SFAS 161 requires enhanced disclosures about derivative
instruments and hedging activities to enable investors to better understand
their effects on an entity’s financial position, financial performance, and cash
flows. The new standard also increases required disclosures regarding the
location and amounts of derivative instruments in an entity’s financial
statements; how derivative instruments and related hedged items are accounted
for under SFAS 133; and how derivative instruments and related hedged items
affect its financial position, financial performance, and cash flows. Since SFAS
161 requires only additional disclosures concerning derivatives and hedging
activities, the adoption of SFAS 161 did not affect the Company’s financial
position and results of operations. The required disclosures for SFAS
161 are included in this footnote.
The
Company accounts for certain forward purchase and forward sale coal contracts
that do not qualify under the “normal purchase and normal sale” exception of
SFAS 133 as derivatives and records these contracts as assets or liabilities at
fair value. Changes in fair value of these coal derivative contracts have been
recorded as an (increase) decrease in fair value of certain derivative
instruments, net, and included as a component of costs and expenses in the
consolidated statements of income. At March 31, 2009, the Company had
unrealized gains (losses) on open sales and open purchase contracts of $4,568
and ($5,617), respectively. The unrealized gains of $4,568 on open sales
contracts are recorded in prepaid expenses and other current assets.
The unrealized losses on open
purchase contracts are recorded in accrued expenses and other current
liabilities and other liabilities in the amount of ($5,392) and ($225),
respectively. The
Company has utilized interest rate swap agreements to modify the interest
characteristics of a portion of the Company's outstanding debt. The swap
agreements essentially convert variable-rate debt to fixed-rate debt and have
been designated as cash flow hedges. Changes in the fair value of
interest rate swaps designated as hedging instruments of the variability of cash
flows associated with floating rate and long-term debt obligations are reported
in accumulated other comprehensive loss. These amounts are
subsequently reclassified into interest expense in the same period in which the
related floating rate debt obligation affects earnings. At March 31,
2009, the fair value of the interest rate swap agreements is a liability of
$27,897, which is recorded in other liabilities.
The
Company is also exposed to the risk of fluctuations in cash flows related to its
purchase of diesel fuel. The Company has entered into diesel fuel swap
agreements and diesel put options to reduce the volatility in the price of
diesel fuel for its operations. Changes in fair value are recognized in earnings
if they are not eligible for hedge accounting or other comprehensive income if
they qualify for hedge accounting. Most of the diesel fuel swap
agreements and put options are not designated as hedges for accounting purposes
and therefore the changes in fair value of these diesel fuel derivative
instrument contracts have been recorded as an (increase) decrease in fair value
of certain derivative instruments, net, and included as a component of costs and
expenses in the consolidated statements of income. These diesel fuel
swaps and put options use the NYMEX New York Harbor No. 2 Heating Oil (“No. 2
heating oil”) futures contracts as the underlying commodity reference
price. Any unrealized loss is recorded in accrued expenses and other
current liabilities and other liabilities and any unrealized gain is recorded in
prepaid expenses and other current assets and other assets. For
any hedges that qualify for hedge accounting, the effective portion of any
unrealized gain or loss is recorded in accumulated other comprehensive income
(loss) and any ineffective portion of any unrealized gain (loss) is recorded as
an (increase) decrease in fair value of certain derivative instruments,
net.
As of
March 31, 2009, approximately 11,670 gallons or 52% of the Company's budgeted
2009 remaining diesel fuel usage has been capped with the swap agreements in
which the Company has agreed to pay a fixed price and receive a floating price
per gallon of No. 2 heating oil. The fixed prices for the notional
quantity of 11,670 gallons range from $1.61 to $4.10 per gallon for the last
nine months of 2009. In addition, as of March 31, 2009, the Company
has in place swap agreements with respect to 19,310 gallons, at fixed prices
ranging from $1.79 to $3.86 per gallon, which mature in 2010 to
2012. At March 31, 2009, the fair value of these diesel fuel swap
agreements is a net liability of $36,255, which is recorded in other assets in
the amount of $49, accrued expenses and other current liabilities in the amount
of $21,023, and in other liabilities in the amount of
$15,281.
The
Company has also employed an options strategy – both purchasing and selling put
options – to protect cash flows in the event diesel fuel prices decline. As of
March 31, 2009, the Company had purchased put options for 1,323 gallons at a
strike price of $3.50 per gallon for the second quarter of 2009. In
the event that No. 2 heating oil prices decline below the strike price, the
Company can exercise the put options and sell the 1,323 gallons at the strike
price, therefore reducing the negative impact of any of the swap agreements that
have settlement prices above market. As of March 31, 2009, the Company had sold
put options for 1,323 gallons for the second quarter of 2009 at a strike price
of $3.00 per gallon. This was part of a put spread strategy that effectively
provided protection for market prices between $3.00 and $3.50. In the event that
No.2 heating oil prices decline below the $3.00 strike price, then the sold put
options will offset the purchased put options with no net benefit or
cost. At March 31, 2009, the fair value of all diesel fuel put
options is a net asset of $655 of which $2,761 is recorded in prepaid expenses
and other current assets and $2,106 is recorded in accrued expenses and other
current liabilities.
The
following are the derivatives in cash flow hedging relationships and derivatives
not designated as hedging instruments, and their related effect in assets as of
March 31, 2009 and December 31, 2008:
The
following are the derivatives in cash flow hedging relationships and derivatives
not designated as hedging instruments, and their related effect in liabilities
as of March 31, 2009 and December 31, 2008:
The
following are the derivatives in cash flow hedging relationships and their
related effect in the Income Statement and Other Comprehensive Income for the
periods ending March 31, 2009 and 2008:
The
following are the derivatives not designated as hedging instruments and their
related effect in the Income Statement for the periods ending March 31, 2009 and
2008:
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