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Derivative Commodity Instruments
 12 Months Ended
Dec. 31, 2011
Derivative Commodity Instruments [Abstract]  
Derivative Commodity Instruments

10. Derivative Commodity Instruments

The Company uses derivative instruments to reduce price volatility risk on commodities, primarily natural gas and ethane, from time to time. The Company does not use derivative instruments to engage in speculative activities.

For derivative instruments that are designated and qualify as fair value hedges, the gains or losses on the derivative instruments, as well as the offsetting losses or gains on the hedged items attributable to the hedged risk, were included in cost of sales in the consolidated statement of operations in 2011. There were no derivative instruments designated by the Company as fair value hedges in 2010 and 2009. As of December 31, 2011, the Company had 57,960,000 gallons of feedstock forward contracts designated as fair value hedges.

Gains and losses from changes in the fair value of derivative instruments that are not designated as hedging instruments were included in cost of sales in the consolidated statements of operations in 2011, 2010 and 2009.

The exposure on commodity derivatives used for price risk management includes the risk that the counterparty will not pay if the market declines below the established fixed price. In such case, the Company would lose the benefit of the derivative differential on the volume of the commodities covered. In any event, the Company would continue to receive the market price on the actual volume hedged. The Company also bears the risk that it could lose the benefit of market improvements over the fixed derivative price for the term and volume of the derivative instruments (as such improvements would accrue to the benefit of the counterparty).

 

The fair values of derivative instruments in the Company's consolidated balance sheets were as follows:

 

     

Asset Derivatives

  
    

Balance Sheet Location

        Fair Value as of December 31,      
            2011              2010      

Not designated as hedging instruments

         

Commodity forward contracts

   

Accounts receivable, net

    $ 2,437       $ 47   
     

 

 

     

 

 

  

Total asset derivatives

       $ 2,437       $ 47   
     

 

 

     

 

 

  
    

Liability Derivatives

  
    

Balance Sheet Location

    Fair Value as of December 31,  
        2011      2010  

Designated as hedging instruments

         

Commodity forward contracts

   

Accrued liabilities

    $ 3,262       $ —     

Not designated as hedging instruments

         

Commodity forward contracts

   

Accrued liabilities

      973         46   
     

 

 

     

 

 

  

Total liability derivatives

       $ 4,235       $ 46   
     

 

 

     

 

 

  

The following tables reflect the impact of derivative instruments designated as fair value hedges and the related hedged item on the Company's consolidated statement of operations. There was no material ineffectiveness with regard to the Company's qualifying hedges in 2011.

 

Derivatives in Fair Value
Hedging Relationships

   

Location of Gain (Loss)
Recognized in Income on Derivative

    Year Ended December 31,  
      2011     2010      2009  

Commodity forward contracts

    Cost of sales    $ (4,895 )    $ —         $ —     
     

 

 

    

 

 

     

 

 

  

Hedged Items in Fair Value
Hedging Relationships

   

Location of Gain (Loss)
Recognized in Income on Hedged Items

    Year Ended December 31,  
      2011      2010      2009  

Firm commitment designated as the hedged item

    Cost of sales    $ 5,092       $ —         $ —     
     

 

 

     

 

 

     

 

 

  

The impact of derivative instruments that have not been designated as hedges on the Company's consolidated statements of operations were as follows:

 

Derivatives Not Designated as
Hedging Instruments

   

Location of Gain (Loss)
Recognized in Income on Derivative

    Year Ended December 31,  
      2011      2010      2009  

Commodity forward contracts

    Cost of sales    $ 2,043       $ 69       $ 5,347   
     

 

 

     

 

 

     

 

 

  

See Note 11 for the fair value of the Company's derivative instruments.